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Zim needs structural reforms — IMF

ZIMBABWE’S economic outlook is looking up, but the country needs to institute structural reforms around tenure system and address rigidity in the labour market, the International Monetary Fund (IMF) says.

This comes after an IMF team last week met Finance Minister Tendai Biti and Economic Planning Minister Tapiwa Mashakada and central bank chief Gideon Gono, among other government officials.
The team’s leader Vitaliy Kramarenko said: “Fully unlocking Zimbabwe’s growth potential would require significant progress in structural reforms. Priority areas include: reducing labour market rigidities, establishing security of land tenure, clarifying ownership requirements under the indigenisation legislation, and addressing concerns about governance in the diamond sector.”
Kramarenko sees the 2011 budget generating a cash surplus.
Although Zimbabwe’s economy is on an upside, Kramarenko says government should strengthen the business climate.
Kramarenko said: “Supported by renewed efforts to strengthen policies and favourable shocks, the Zimbabwe economy is completing its second year of buoyant economic growth after a decade of economic decline. The budget is projected to generate a cash surplus in 2010, governance at the Reserve Bank of Zimbabwe (RBZ) is improving, and the government is working towards strengthening the business climate.
“Regarding favourable shocks, higher gold and platinum prices boosted exports and government revenues, a significant appreciation of the rand has eased competitiveness pressures, and favourable weather conditions have contributed to higher agricultural output.”
He added that Zimbabwe should reduce both internal and external financial vulnerabilities.
“To sustain the economic recovery, spread its benefits to a larger share of the population, and reduce significant external and financial vulnerabilities, it is important to build consensus on a strong medium-term agenda focused on prudent macroeconomic policies and a comprehensive package of structural reform. Political stability is also key to consolidating gains in macroeconomic performance,” said Kramarenko.
The IMF mission also urged government to keep its spending under US$2,5 billion saying the budget will be broadly balanced.
Kramarenko added: “Under the current IMF World Economic Outlook assumptions for commodity prices, it is projected that the budget will be broadly balanced in 2011. To create fiscal space for higher capital expenditure and social programs, it would be critically important to start eliminating ghost civil servants. As commodity prices are high at present, transforming part of the accumulated government deposits in the domestic banking system into international reserves would create a cushion against future possible shocks.
“Risks in the banking system have eased since early 2010. Strict supervisory vigilance and early intervention in case of non-compliance with prudential rules remain the authorities’ only tools to contain solvency and liquidity risks in the system. In that context, strengthened liquidity requirements would make the banking system more resilient to shocks. Recent efforts to downsize and restructure the RBZ are welcome. In the interest of financial stability, banks’ statutory reserves should be given preferred status in the resolution of RBZ liabilities.”


Chris Muronzi

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