ON October 29, 2014, the management of the International Monetary Fund (IMF) completed the third review under the Staff-Monitored Programme (SMP) with Zimbabwe and approved a successor SMP covering the period October 2014 to December 2015.
INTERNATIONAL MONETARY FUND
An SMP is an informal agreement between country authorities and IMF staff to monitor the implementation of a country’s economic programme. SMPs do not entail financial assistance or endorsement by the IMF executive board.
The SMP that expired in June 2014 provided an important anchor for Zimbabwe’s macro-economic policies under difficult political and economic circumstances. The Zimbabwean authorities’ renewed commitment to the policies under the programme was key to meeting all the quantitative targets and structural benchmarks for the third review.
Zimbabwe’s economy is at a crossroads. The economic situation remains difficult. The post-hyperinflation rebound has ended. Gross Domestic Product (GDP) growth decelerated from 10,5% in 2012 to 4,5% in 2013 due to adverse weather conditions, weak demand for key exports and election-year uncertainty. The outlook in 2014 is for continued low growth of 3%.
Annual inflation dipped below zero recently, but stood at 0,1% in September. The external position is precarious, with low international reserves, a large current account deficit, an overvalued real exchange rate and growing external arrears.
Credit and deposit growth have slowed down sharply, liquidity conditions are tight and the banking system remains weak.
Fiscal pressures arose in early 2014 due to higher-than-budgeted wage increases and revenue shortfalls as the economy weakened. However, the implementation of a package of revenue and expenditure measures enabled the authorities to comfortably meet their fiscal targets for the first half of 2014.
Sustaining higher growth and poverty reduction will require comprehensive reforms over the medium-term.
The successor SMP aims at laying the foundations for such reforms. The main objective of the new programme is to strengthen the country’s external position as a prerequisite for arrears clearance, resumption of debt service and restored access to external financing. To that end, the authorities will strive to consolidate the fiscal position, eliminating the primary budget deficit by end-2015.
They will also aim to accumulate international reserves and seek to mobilise international support for resolving the country’s external debt situation. The authorities intend to restore confidence in the financial sector, as well as improve public debt and financial management.
Finally, the authorities plan to make progress in a number of key structural reform areas in order to enhance the business climate, boost productivity and competitiveness and build confidence.
Successful implementation of these reforms will demonstrate that the country can implement the policies that could justify an IMF-financed programme.
Key risks to the new programme stem from global commodity price shocks, domestic policy slippages, gaps in policy implementation capacity and lagging progress in resolving external arrears. While Zimbabwe faces these risks with practically no buffers, the successor SMP aims to rebuild these buffers and strengthen the country’s resilience to shocks.
Strong macro-economic policies and debt relief, in the context of a comprehensive arrears clearance strategy supported by development partners, will be essential to address Zimbabwe’s developmental needs. A successful implementation of the SMP would be an important stepping stone toward Zimbabwe’s normalising relations with the international community.
IMF staff welcomes the authorities’ decision to start discussions with multilateral creditors to address Zimbabwe’s outstanding arrears and exploring the possibility of debt rescheduling.
IMF staff will remain engaged with the authorities to monitor progress in the implementation of their economic programme and will continue providing targeted technical assistance in order to support Zimbabwe’s capacity-building efforts and its adjustment and reform programme.