Press Release No. 03/210

Press Release: IMF Initiates Compulsory Withdrawal Procedures for Zimbabwe

December 3, 2003

Economic and social conditions in Zimbabwe have continued to deteriorate during 2003. GDP has declined by about 40 percent during 1999-2003, and inflation rose to 526 percent in October 2003, fueled by monetary expansion and a depreciating parallel market exchange rate. Poverty and unemployment rates have continued to rise, Zimbabweans suffer from one of the highest HIV/AIDS infection rates in the world, and the population faces shortages of basic products, including fuel and medicines. The adverse effects of the land reform and a drought left two-thirds of the population in need of food aid in 2002/03, and no significant improvement is expected in the remainder of 2003/04. The World Food Program has appealed for food aid for Zimbabwe, but pledges up to this point meet less than half of the estimated requirements through April 2004.

Executive Directors urged the authorities to strengthen cooperation with the Fund and to adopt a comprehensive adjustment program that would arrest and reverse Zimbabwe's continuing economic decline. The IMF staff stands ready to continue assisting the authorities in this endeavor. The Executive Board will review Zimbabwe's overdue financial obligations to the IMF again within six months or at the time of the Executive's Board consideration of the 2004 Article IV consultation with Zimbabwe, whichever is earlier.

Background

Zimbabwe has been in continuous arrears to the IMF since February 2001. As of end-November 2003, Zimbabwe's arrears to the IMF amounted to SDR 187.0 million (US$273 million), or about 53 percent of its quota in the IMF. Of the total amount of arrears, SDR 75.6 million (US$110 million) was overdue to the Poverty Reduction and Growth Facility (PRGF) Trust. Zimbabwe is the first and only country to have protracted overdue obligations to the PRGF Trust. Zimbabwe has made only minor payments to the IMF since June 2003, at the time of the Executive Board's last review, and as a result, its arrears have increased further.

The initiation of the procedure on the compulsory withdrawal from the IMF is one in a series of escalating measures that the IMF applies to members that fail to meet their obligations under its Articles of Agreement. On September 24, 2001, Zimbabwe was declared ineligible to use the IMF's general resources and was removed from the list of countries eligible to use resources under the PRGF (see Press Release No. 01/40). On June 13, 2002, the Executive Board adopted a declaration of non-cooperation with respect to Zimbabwe and suspended technical assistance to the country (see Press Release No. 02/28). On June 6, 2003, the Executive Board suspended the voting and related rights of Zimbabwe in the IMF (see Press Release No. 03/80). While today's decision has no immediate effect on Zimbabwe's standing in the IMF, it starts a process which could ultimately result in the compulsory withdrawal of the country from the IMF. During this process, Zimbabwe will have ample opportunity to improve its cooperation with the IMF with the aim of addressing the economic decline in the country and resolving its overdue financial obligations.

Additional information on how the IMF deals with overdue financial obligations is available in Chapter V of Financial Organization and Operations of the IMF (IMF Pamphlet Series No. 45, 6^th ed., 2001).