‘Vested interests’, drought throw Zimbabwe reforms off-track, IMF says

The International Monetary Fund (IMF) says Zimbabwe’s reform plan is off track, urging the country to fight corrupt “vested interests” and present a debt repayment plan in order to win support.  

Zimbabwe’s economy shrunk by 8.3% and will see stagnation in 2020 with only 0.8% growth, the IMF said in a withering report following its latest routine Article IV consultations with Zimbabwe. The IMF had originally forecast growth of 2.5% in 2020.

The Fund sees inflation ending the year at 52%. 

“Directors stressed the need to address governance and corruption challenges, entrenched vested interests, and enforcement of the rule of law to improve the business climate and support private‑sector‑led inclusive growth,” the IMF said on Wednesday.

“Such efforts would be instrumental to advance reengagement efforts with the international community and mobilize the needed support.”

Zimbabwe and the IMF agreed an SMP in 2019, under which the Fund would monitor implementation of Zimbabwe’s Transitional Stabilisation Programme (TSP). This was seen as an early step towards Zimbabwe regaining the confidence of lenders.

The IMF says despite some early progress on fiscal management, the reform plan is off the rails. 

“They (IMF directors) noted with regret that the Staff‑Monitored Program was off‑track and underscored the importance of continued engagement between the Fund and the authorities, including through technical assistance, policy advice and other innovative ways, to help immediately stabilize the economy and address the humanitarian crisis.”

According to the IMF, “with another poor harvest expected, growth in 2020 is projected at near zero, with food shortages continuing.”

Key points

Here are other major points and recommendations made in the IMF’s latest report:

  • Zimbabwe’s made notable reforms including a “significant fiscal consolidation” that cut the monetary financing of the deficit, and the restructuring of the command agriculture financing model to a public-private partnership with commercial banks.
  • Uneven implementation of reforms, notably delays and missteps on forex and monetary reforms, failed to restore confidence in the new currency.
  • Zimbabwe has yet to define the modalities and financing to clear arrears to the World Bank and other multilateral institutions, and to undertake reforms that would facilitate resolution of arrears with bilateral creditors. This continues to constrain Zimbabwe’s access to external official support. 
  • Without international aid, Zimbabwe authorities face a difficult balance of pursuing tight monetary policy to reduce very high inflation and prudent fiscal policy to address the macroeconomic imbalances and build confidence in the currency, while averting a crisis. 
  • While the 2020 budget includes a significant increase in social spending, it is likely insufficient to meet the pressing social needs. 
  • Without donor support, the risks of a deep humanitarian crisis are high. Social spending in response to the drought may widen deficits, undoing earlier successes in containing them.
  • IMF calls for spending cuts, including on agricultural support programmes, to free up money for social spending.
  • The Fund urges Zimbabwe to press forward with the establishment of a functional foreign exchange market and to remove distortions. 
  • Given low reserves and hyper‑inflation, limited credibility, and a lack of access to foreign funding, a monetary targeting regime is appropriate to conduct monetary policy.