IMF approves successor SMP

via IMF approves successor SMP | The Herald 10 November 2014

The International Monetary Fund said the successful implementation of the successor Staff Monitored Programme will address Zimbabwe’s precarious external position, large current account deficit and growing external arrears.

IMF said macroeconomic 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.

“Zimbabwe’s 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. IMF said fiscal pressures arose in early 2014 due to higher-than-budgeted wage increases and revenue shortfalls as the economy weakened,” said IMF.

In a statement last week, IMF noted Zimbabwe has shocks, domestic policy slippages, gaps in policy implementation capacity, and lagging progress in resolving external arrears.

IMF approved the successor Staff Monitored Programme which will cover the period October 2014 — December 2015 after having completed the third review of the project in July this year.

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.

A successful implementation of the SMP would be an important stepping stone towards Zimbabwe’s normalizing 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 program, and will continue providing targeted technical assistance in order to support Zimbabwe’s capacity-building efforts and its adjustment and reform program,” said IMF.

IMF said the SMP that expired in June 2014 provided an important anchor for Zimbabwe’s macroeconomic policies under difficult political and economic circumstances.

“The authorities’ renewed commitment to the policies under the program 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,” said IMF.

Zimbabwe’s Gross Domestic Product growth for 2012 decelerated from 10,5 percent in 2012 to 4,5 percent 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 percent and annual inflation dipped below zero recently, but stood at 0,1 percent in September 2014.

“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,” said IMF.

IMF said the successor SMP aims at laying the foundations for such reforms and the main objective of the successor SMP is to strengthen the country’s external position, as a prerequisite for arrears clearance, resumption of debt service, and restored access to external financing.

The fund said to that end, the authorities will strive to consolidate the fiscal position, eliminating the primary budget deficit by end-2015.

IMF said they will also aim to accumulate international reserves and seek to mobilise international support for resolving the country’s external debt situation.