An International Monetary Fund (IMF) mission led by Mr. Domenico Fanizza visited Harare from August 31 to September 11, 2015 to conduct the second review under the 15-month Staff-Monitored Program (SMP) approved by Management in November 2014 (see Press Release No. 14/504). The mission reached a staff level agreement on policies for completion of the second review.
At the conclusion of the visit, Mr. Fanizza issued the following statement:
“The authorities have moved forward with their reform program, despite increasing economic and financial difficulties. Moreover, they have intensified efforts toward reengagement with the international financial community. They have developed a proposal for a strategy for resolving Zimbabwe’s external arrears to the international financial institutions (IFIs), for which they intend to seek support from creditors at a dedicated stakeholders meeting (to be held on the sidelines of this year’s Annual Meetings of the IMF and the World Bank in Lima, Peru). Their resolve in this area is commendable.
“In the context of their reform program, the authorities have taken important steps to strengthen the financial sector and liberalize the labor market. They have also prepared plans to rationalize public expenditure and reduce public sector employment costs. However, these reforms will require time and deeper efforts before their beneficial impact is felt on the economy. We are pleased that the authorities met all quantitative targets and structural benchmarks for the second review, and two structural benchmarks scheduled for the third review under the SMP.
“Economic difficulties have intensified this year. Growth has slowed more than anticipated and we expect it to remain weak in 2015. Despite the favorable impact of lower oil prices, the external position remains precarious and the country in debt distress. The authorities are committed to laying the foundation for sustained strong, private sector-led growth. The policy reform agenda for the remainder of the SMP consists of the following major areas:
• Mitigating the impact of this year’s adverse shocks on the external position and growth. The authorities plan to further reduce the primary deficit and to achieve balance by 2016. This will help increase international reserves, despite the worse-than-expected global and domestic environment. The top priority remains to reduce public sector employment costs to make room for (a) much-needed capital spending to raise growth; and (b) social spending to protect the poor.
• Restoring confidence in Zimbabwe’s financial sector. Completing the recapitalization of the RBZ will enhance its ability to supervise the banking sector. There are no longer any distressed banks, all banks now fully comply with capital requirements, nonperforming loans have declined, and the interbank market is now functioning. As a result, banks are now in a better position to extend credit to the private sector, which should help economic activity. However, to cement financial stability and confidence, nonperforming loans need to decline further.
• Improving the investment climate. The authorities’ intention to publish on the website of the Zimbabwe Investment Authority clear guidelines on the implementation of the Indigenization and Economic Empowerment Laws should help reduce uncertainty for both domestic and foreign investors.
• Garnering support for a strategy to clear arrears with multilateral institutions. The authorities’ efforts to discuss their strategy on resolving the external arrears with multilateral creditors at the dedicated stakeholders meeting in October will be instrumental in highlighting the authorities’ reform agenda on the path toward normalizing relations with the international community.
“The report will be submitted for Management approval in September 2015.
“The mission met with Hon. P. A. Chinamasa, Minister of Finance and Economic Development (MoFED), Dr. M. J. M. Sibanda, Chief Secretary to the President and Cabinet, Dr. J. P. Mangudya, Governor of the Reserve Bank of Zimbabwe (RBZ), members of the Parliamentary Committee on Finance and Economic Development, other senior government officials, and representatives of the private sector, civil society and development partners. The team wishes to thank the authorities and the staff of the MoFED and the RBZ for their warm hospitality and excellent collaboration.”
Source: International Monetary Fund (IMF)