Zim economy in precarious state: IMF

via Zim economy in precarious state: IMF – DailyNews Live 24 June 2014 by John Kachembere

HARARE – Zimbabwe’s economy is in a precarious state, with usable international reserves covering less than two weeks of imports, the International Monetary Fund (IMF) has warned.

In its article 1V consultation with Zimbabwe report released yesterday, the institution said the country’s current account deficit widened to 28,7 percent of gross domestic product (GDP) in 2013 as the trade deficit deteriorated, reflecting lower exports.

“Zimbabwe faces serious medium-term challenges and achieving sustainable, inclusive growth will require strong macroeconomic and financial policies, an enabling business environment, and normalised relations with creditors,” it said.

IMF said the main near-term risks relate to further fiscal underperformance and uncertainty in the external environment that could see lower commodity prices, particularly for key mineral exports.

“Other risks relate to policy inconsistencies that could affect investment and financial sector vulnerabilities — specifically, liquidity shortages and disorderly unwinding of troubled banks,” said the institution.

This comes as the economy is slowly sliding into recession characterised by low aggregate demand, deflation, acute liquidity crisis and massive company closures.

The World Bank recently slashed Zimbabwe’s GDP forecast for this year from the 6,1 percent predicted by government to 2,0 percent citing overall disappointing growth on first quarter weakness in most sectors of the economy.

“The current account deficit is expected to improve but will remain high, averaging 15 percent of GDP. In addition, planned fiscal consolidation should facilitate a modest rebuilding of fiscal and external buffers, including international reserves,” said IMF.

With risks on the downside, IMF directors who conducted the study highlighted the need to restore fiscal and external sustainability and reduce financial vulnerabilities. They emphasized that achieving sustainable and inclusive growth requires determined and comprehensive reforms.

In this regard, they welcomed the authorities’ renewed commitment to implementing the staff-monitored programme, which has provided a useful anchor for policies during the past year notwithstanding policy delays.

“Strong macroeconomic policies and a comprehensive arrears clearance framework supported by development partners are essential to addressing Zimbabwe’s debt problems. Local authorities must engage in coordinated discussions with the World Bank and other international financial institutions (IFIs) and called on them to respect the preferred creditor status of IFIs, avoid selective debt service, and increase payments to the Fund’s Poverty Reduction and Growth Trust as capacity to repay improves,” said the directors.

Zimbabwe’s economy declined by as much as 40 percent in the decade before 2009, only rebounding to average seven percent growth between 2009 and 2011 after the country dumped its inflation-ravaged currency for the United States dollar and South Africa’s rand and President Robert Mugabe agreed to share power with the opposition.