THE International Monetary Fund (IMF) says the Reserve Bank of Zimbabwe must stop engaging in quasi-fiscal activities and focus on private sector growth to help economic recovery.
By Bernard Mpofu
Zimbabwe economy is facing difficulties as a severe drought and slow reform momentum have led to high expenditure levels since late 2015, despite subdued revenues.
The multilateral lender also urged government to fight corruption to restore confidence.
After completing its routine consultations on Zimbabwe, an IMF team led by Ana Lucía Coronel said while agriculture and mining will drive economic growth, the country requires several reforms to ensure an inclusive and sustained growth.
Currently, 96,8% of the US$4 billion national budget, a large chunk of government finances, is going towards recurrent expenditure in the form of the civil servants’ wage bill, forcing the central bank to rely on Treasury Bills (TBs) to finance government projects.
In March, government’s stock of TBs reached a whopping US$2,079 billion amid concerns that this could crowd out private sector lending.
“The economy is facing difficulties. A severe drought and slow reform momentum have led to high expenditure levels since late 2015, despite subdued revenues. With a difficult external environment limiting access to foreign inflows, the ensuing large fiscal imbalances are being financed by domestic borrowing. The expansionary fiscal stance and curtailed net capital flows have resulted in cash shortages, hampering economic activities,” the IMF said.
“Restoration of confidence is essential for attracting the necessary dollar inflows to the economy. Refraining from central bank financing of the deficit and containing the issuance of debt and quasi-currency instruments is vital. Furthermore, the financial sector should restore its role of intermediating resources in the economy by channelling deposits to productive credit rather than financing fiscal operations.
“The team recommends taking action to unleash the potential of the private sector and ensure that growth benefits the most vulnerable segments of the population. Building on the progress already achieved, the government is encouraged to demonstrate that Zimbabwe is open for business. This will include enhancing efforts to tackle corruption, encouraging private sector investment, allowing the market to determine prices, promoting labour flexibility, and creating a stable legal and regulatory framework to reduce policy uncertainty.”
During an Article IV consultation, an IMF team of economists visits a country to assess economic and financial developments and discuss the country’s economic and financial policies with government and central bank officials.
The team reports its findings to IMF management and then presents them for discussion to the Executive Board, which represents all of the IMF’s member countries. A summary of the board’s views is subsequently transmitted to the country’s government.
“Spending pressures stem from high employment costs, government transfers to support specific economic sectors, and elevated discretionary expenditure. Action on these three fronts, while safeguarding social outlays, is therefore crucial,” the IMF said.
“Reducing the wage bill could involve reviewing allowances and benefits and evaluating the size of the civil service with a view to eliminating non-essential posts. Government interventions to support agriculture, while understandable, could be redesigned with the aim of maximising the benefits on production while minimising the risks to the public-sector balance sheet. Reinforcing the government’s efforts to curtail non-priority spending is also pressing.”