A statement issued by the IMF executive board on Tuesday after concluding an Article IV consultation with Zimbabwe said government should further reduce its public service wage bill, currently accounting for 70% of total revenues.
Article IV consultations are regular meetings carried out by the IMF executive board to monitor and evaluate the economic policy of member countries.
The board also asked government to stop a “moral suasion” on banks to increase lending to specific sectors. Moral suasion, according to Investopedia, an online investment dictionary, is a “tactic used by an authority to influence and pressure, but not force, banks into adhering to policy.”
This recommendation could face resistance from the Reserve Bank and treasury which have since last year called on banks to increase loans to the manufacturing and agricultural sectors amid accusations the financial services sector was slowing down economic recovery through “conservative lending”.
Official figures show that loans and advances constituted US$600 million of the US$1,3 billion total deposits made in the entire formal banking sector last year. Efforts to get comment from the Finance ministry were in vain at the time of going to press after Biti and his permanent secretary Willard Manungo were said to be away on business.
“They strongly encouraged the authorities to return to cash budgeting, and reduce the wage bill and other low-priority expenditures,” reads the statement. Early this month Public Service minister Eliphas Mukonoweshuro attacked Biti after the Finance minister announced a salary freeze for public servants.
“They also urged the authorities to refrain from further use of non-concessional special drawing rights (SDR)-related funds for budget financing and to save Zimbabwe’s SDR holdings as part of the country’s international reserves.”
The BrettonWoods institution said the appointment of a new central bank board earlier this month was a “step toward resolving RBZ governance issues and refocusing its activities on its core functions under the multi-currency regime”
The IMF added that large budgetary wage increases and lack of clarity on the January indigenisation regulations compelling foreign-owned companies valued at US$500 000 and above to cede 51% shareholding to black Zimbabweans would make this year’s economic outlook “highly uncertain”.
The IMF expects real Gross Domestic Product for Zimbabwe to grow by 2,2% compared to 4,0% recorded last year.
The monetary body also said Zimbabwe should stick with the use of a multi-currency regime.
“Directors considered that the multi-currency system would serve Zimbabwe well in the coming years. They agreed that the Zimbabwe dollar can be reintroduced as sole legal tender only after a track record of sound policies is established and a central bank governance framework with a focus on price stability is adopted,” IMF said.
Zimbabwe abandoned its currency last year in favour of the South African rand, Botswana pula, American dollar and the British pound in the face of an unprecedented hyperinflation.