IMF predicts 7% decline


Shakeman Mugari

IN sharp contrast to Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono’s claims that the economy will grow by 2-2,5% this year, the International Monetary Fund (IMF) ha

s forecast a massive 7% decline.


Gono initially predicted a 3,5-5% economic growth but later revised these figures downwards.


The IMF report, which is probably the most damning it has released over the past five years, said the economy would decline by 7%, casting doubts even on Gono’s revised growth projections. The report also paints a bleak picture of Zimbabwe’s prospects, predicting further contraction. While Gono said inflation would decline to double-digits of between 50-80% by year-end, the IMF sees it galloping to 320%. It said the RBZ had contributed significantly to stoking inflationary pressures by continuing to play a quasi-fiscal role, handing out money to parastatals and funding government’s clean-up operation.


The fund said despite having a good start last year, other economic fundamentals had deteriorated. It said the economic crisis was likely to continue unless there was a drastic shift in both monetary and fiscal policies.


The IMF’s predictions come against clear signs that Gono has completely failed to turnaround the economy. With almost a third of his tenure in office gone, the economic situation is worse than it was before he came in at the end of 2003.


“The authorities have not met the policy commitments made in December last year, and in the absence of decisive policy action, the outlook appears bleak,” said the report. “(The fund’s) staff projects a further decline in GDP of 7% in 2005, mainly due to difficulties in agriculture.”


It went on: “The fiscal deficit will widen to 14% of GDP (from 4,3/4% in 2004) and contribute – together with the RBZ’s expanding quasi-fiscal activity – to a pickup in inflation to 320% by end 2005,” the report said. The government had last year projected a budget deficit of about 5% of GDP.


The IMF further warned that Operation Murambatsvina, which was condemned globally, would add to fiscal pressures, curtail informal markets, lower the GDP further and raise price pressures.


“Over the medium term GDP will continue to contract given the difficulties in agriculture and foreign currency shortages,” the IMF said.


The fund poured cold water on Gono’s predictions that inflation would come down to between 50-80% by year-end. “Inflation will remain in the 200-300% range, reflecting substantial fiscal deficit and quasi-fiscal activities,” said the fund, warning that the country’s debts were likely to mount. It added that the dual interest rate policy that Gono has insisted on would continue to hurt the economy.


The fund recommended the “liberalisation of the exchange rate and unifying the interest rates regime, with immediate substantial depreciation”.


President Robert Mugabe is vehemently against devaluation and has in the past labelled its proponents “economic saboteurs”.


The IMF also noted that without decisive policy action the outlook for 2005 and beyond remained bleak.


The report observed that the agricultural sector which government had predicted would grow by 28% would remain in the woods due to uncertainty and lack of experience of the newly resettled farmers. Indications are that the sector will shrink further this year on the back of massive shortages of fuel, foreign currency and essential inputs.