Press Release No. 06/282

Press Release: Statement by IMF Staff at the Conclusion of the 2006 Article IV Consultation Discussions in Zimbabwe

December 18, 2006

An International Monetary Fund (IMF) staff mission that recently visited Harare issued the following statement today:

"A staff mission from the International Monetary Fund (IMF) visited Zimbabwe during December 4-16, 2006 to conduct the Article IV Consultation discussions. We would like to thank Zimbabwe's economic team led by Minister of Finance, Herbert Murerwa, Minister of Economic Development, Rugare Gumbo, and Reserve Bank of Zimbabwe (RBZ) Governor, Gideon Gono, as well as private sector participants and members of the civil society for useful discussions and for facilitating our work.

"The discussions focused on the economic situation and policies to stabilize the economy and achieve sustained growth and low inflation, which would lay the foundation for improving the living standards of all Zimbabweans. The mission noted the deteriorating economic conditions since its last visit in January/February this year. Inflation has accelerated while shortages of food, fuel, basic consumer goods, and essential agricultural inputs remain acute. Progress on structural reforms has been limited and uncertainty over property rights continues to depress investor confidence. Although recent data on social indicators are not available, high inflation and falling output are likely to have polarized incomes and increased poverty.

"As emphasized in previous rounds of discussions last year and January/February this year¹, Zimbabwe's economic crisis calls for the urgent implementation of a comprehensive policy package comprising several mutually reinforcing actions. Without a fundamental change in policies, prospects are for a continued deterioration in the economic situation.

"A crucial element of this package will be strong fiscal adjustment. The inclusion in the 2007 budget of substantial quasi-fiscal activity reported by the RBZ, such as the provision of subsidized foreign exchange to the public sector and price supports to commodity exporters, marks a positive step towards increasing transparency. Going forward, the key will be first to ensure that sharp cuts are made in real terms in fiscal spending, including quasi-fiscal activity previously undertaken by the RBZ. This will mean that the government should aim to stay within the current 2007 budget envelope. Second, fiscal expenditure needs to be prioritized, in particular to ensure adequate food imports, an urgent improvement in health infrastructure, and well-targeted social safety nets to protect the poor and address the needs of those affected by HIV/AIDS and "Operation Murambatsvina".

"Strong fiscal adjustment will need to be supported by complementary policies, in particular: (i) unifying all official exchange rates and moving the unified rate towards market-determined levels; (ii) removing restrictions on current account payments and transfers; (iii) liberalizing price controls and imposing hard budget constraints on public enterprises, whose losses have been largely responsible for quasi-fiscal activities; and (iv) establishing a strong monetary anchor, with the RBZ focusing on its core function of ensuring overall price stability.

"Achieving sustained economic growth and low inflation will require comprehensive structural reforms and a strengthening of governance over the medium term. Such reforms include public enterprise and civil service reform; tax and expenditure management reform; agriculture sector reforms; and the strengthening of private property rights.

"Finally, we encourage the authorities to improve relations with the international community in order to support the government's reform policies and facilitate progress towards the Millennium Development Goals. We hope the authorities will work more closely with the IMF to design and implement a policy package that would help achieve macroeconomic stability and growth and improve the welfare of the Zimbabwean people.

"The 2006 Article IV discussions with Zimbabwe are expected to be concluded by the IMF's Executive Board by March 2007."