The International Monetary Fund (IMF) has urged the government to adopt a raft of reforms to grow the economy and retire the ballooning external debt as the government pushes for an IMF staff-monitored programme next month.
Report by Bernard Mpofu Chief Business Reporter
Currently saddled with a huge debt overhang of $10,7 billion and limited fiscal space, the government has struggled to finance key social and economic projects in the absence of meaningful investment.
The executive board of the Bretton Woods Institution last Friday concluded the Article IV consultation with Zimbabwe and urged the government to introduce several reforms, which could quicken economic growth.
The meeting came at a time when the government had cut down economic growth rates to 5,4% from 9,3% due to underperformance of diamond revenues.
The IMF warned that foreign direct investment in the country would continue to be hampered by lack of clarity on the equity laws compelling foreign-owned companies to dispose of 51% stake to locals. This, the multilateral financier said, would also choke domestic investors from accessing cheap credit.
“A vigorous programme of structural reform and strengthened macroeconomic management would allow the country to sustain higher rates of growth,” reads a statement issued by the IMF.
“To achieve sustained and inclusive growth, directors stressed the importance of full commitment to policies focusing on strengthening fiscal management, reducing financial sector vulnerabilities and improving the business climate.
“Directors urged authorities to fully implement the measures announced in the Mid-Year Fiscal Policy review and take additional measures, if necessary, to address earlier slippages and close the financing gap.”
In response to the fiscal slippages, in July the government announced expenditure and revenue measures, as well as a reassessment of diamond revenue flows. Measures included a general freeze on public sector employment, suspension of a number of diamond-revenue-financed projects, increase in excise duty on fuel and enhanced monitoring of the mineral resources.
The IMF said the government should also speed up the enactment of the Diamond Act to improve accountability in the sub-economic sector.
Early this year, Treasury projected that $600 million would be raised from the sale of the gems, but with three months before the end of the year, less than half of the amount has been channelled to State coffers.
“Directors emphasised that enhancing transparency in the diamond sector, including timely finalisation and implementation of the Diamond Act, is key to strengthening revenues and reducing fiscal pressures,” the IMF said.
Turning to the issue of debt, the IMF said the executive board was impressed by efforts made by the debt-ridden government in seeking a solution to the issue.
IMF directors, the statement further stated, urged the government to fast-track the restructuring of the financially distressed Reserve Bank of Zimbabwe. The directors also agreed that in addressing Zimbabwe’s large debt overhang and achieving external sustainability, the government would require strong macroeconomic policies and a comprehensive arrears clearance framework supported by donors.
The multilateral institution advised authorities to refrain from further non-concessional borrowing and avoid selective debt servicing, as these could complicate reaching agreement with creditors on a debt resolution strategy, further cautioning against the use of special drawing rights holdings to finance expenditures.
“Directors welcomed Zimbabwe’s continued improvement in co-operating with the fund on policies and payments to the Poverty Reduction and Growth Trust, (PRGT) as this would allow the lifting of relevant technical assistance restrictions, making it possible to advance towards negotiation of a staff-monitored programme (SMP) to support the country’s reform efforts,” the IMF said.
“Most directors indicated their readiness to support such a lifting.
“Directors commended the authorities on meeting the outstanding marker on steps towards removing irregularly hired workers from the payroll, which allowed the initiation of a stock-taking on the feasibility of the SMP.
“In this regard, directors welcomed the authorities’ renewed commitment to make regular payments to the PRGT.”