IMF urges ‘bold reforms’ as crisis deepens

Source: IMF urges ‘bold reforms’ as crisis deepens – NewZimbabwe  04/05/2016

THE International Monetary Fund has urged “bold reforms” to revive Zimbabwe’s economy after drought cut agricultural production and disrupted hydropower generation.

Zimbabwe is facing risks to the already difficult economic outlook mainly from the prolonged adverse weather conditions, weak commodity prices and policy implementation in a difficult political environment, the IMF said in a statement after a board meeting on Monday.

“Zimbabwe’s economic difficulties have deepened. Drought, erratic rains, and increasing temperatures, have reduced agricultural output and disrupted hydropower production and water supplies.”

The statement followed the 2016 Article IV Consultation with Zimbabwe and third review under the Staff Monitored Programme.

It said economic activity is severely constrained by tight liquidity conditions resulting from limited external inflows and lower commodity prices.

“Inflation remains in negative territory, because of the appreciating U.S. dollar—the country’s main currency—and lower commodity prices. Zimbabwe remains in debt distress and the level of international reserves is low,” said the IMF.

“Unless the country takes bold reforms, the economic difficulties will continue in medium-term. Given the outlook for the global economy, growth is projected to remain below levels needed to ensure sustainable development and poverty reduction. The current account deficit is expected to narrow, but remain high over the medium term, financed mainly by loans to the private sector.”

The IMF team was in Zimbabwe in February.

Zimbabwe met its commitments under the SMP that ended in December last year, which has been a useful anchor in a difficult macroeconomic and political environment, the Fund said.

The SMP focused on implementing a limited number of key reforms to show that the country has the capacity to implement the kind of reforms that would be required for a Fund-supported programme.

The strategy to clear external arrears to the international financial institutions (IFIs) and reforms, once implemented, should provide positive signals to investors and creditors, and help unlock external flows to finance the authorities’ development plans and private sector-led growth, the Fund said.

Zimbabwe has said it expects to clear its $1,8 billion arrears with the African Development Bank (AfDB), the World Bank and the International Monetary Fund (IMF) by June this year and expects fresh funding from the IFIs before the end of the year.

Timely implementation of measures to curb the wage bill and continued progress in State-Owned Enterprise (SOE) reforms would be needed to lower employments costs, the Fund added.