The institution said “economic difficulties have deepened” and underscored that “Zimbabwe cannot wait and needs to act now”.
The southern African country’s economy has been worsened by the El Niño-induced drought that is buffeting the region and lower commodity prices that have cut revenue from the crucial mining sector, while the appreciation of the US dollar has compounded difficulties.
Zimbabwe uses a multiple currency basket of international legal tenders hedged around the United States dollar. However, currencies from the country’s major trading partners such as the rand and the Chinese yuan have been weaker.
This has eroded the country’s economic competitiveness. Zimbabwe has a debt overhang that has ballooned to US$10bn, with $8bn – most of it in arrears – owed to international multi-funders while the remaining $2bn is in domestic debt.
“Fiscal discipline is the key priority. Given the lack of resources, the authorities need to keep the cash primary accounts close to balance. This heightens the urgency of re-engagement with the international community,” said Domenico Fanizza, the head of the IMF’s mission to Zimbabwe.
He added that this would help unlock crucial financing needed to allow Zimbabwe to deal with adverse shocks and plan for much-needed social and capital outlays.
However, this is not seen as sufficient, with the fund keen to support “ambitious plan for shifting resources to much needed infrastructure investment and social outlays” through reducing its public wage bill.
Additionally, improving the business environment would also have to be prioritised. The IMF said “the consistent and transparent implementation of the indigenisation policy will be critical to attract both foreign and domestic investment” through limiting the scope for discretion.
“We are encouraged that the authorities plan to clear the outstanding arrears with International Financial Institutions.
“The successful resolution of Zimbabwe’s external payment arrears will be an important step toward normalising relations with the international financial community and will allow the country to eventually seek a fund financial arrangement,” Fanizza said.
Zimbabwe urgently needs to reduce its “perceived country risk premium” and “unlock affordable financing for government and the private sector”, the IMF head of mission said.
“This, together with policy reform, will help to achieve sustained economic development through economic transformation, to improve living conditions for the people of Zimbabwe, and to reduce poverty.”