1. The following supplementary information has become available since issuance of the staff report on May 20, 2003. The thrust of the staff’s assessment remains unchanged.
Consumer price inflation rose to 269 percent in the year through April 2003, from 228 percent in March. This reflected in part the impact of fuel price adjustments in mid-April. Further increases are likely in the short term due to the effects of a depreciating parallel market exchange rate and the easing of price controls in early May.
The exchange rate in the parallel market has depreciated rapidly recently, reaching Z$2,400 per U.S. dollar at end-May, compared with Z$1,500 per U.S. dollar in late April. Purchases in the parallel market by the fuel and electricity companies (NOCZIM and ZESA), as well as intensifying inflationary pressures, were contributing factors.
In early May 2003, controls on most prices were removed. Prices of five basic food items (refined and unrefined maize meal, wheat and self-raising flour, and bread) remain controlled, but were increased by substantial amounts.1 For a further 16 “essential” items, ranging from agricultural inputs to food items (cooking oil, beef, milk, and salt), prices are monitored by the Ministry of Industry and International Trade; producers of such items are required to inform the Ministry of any price increases, providing documentation that the markup on cost does not exceed 20 percent. Other prices that had been put under control in the last two years were liberalized, and shortages of most consumer goods have started to ease.
Traditional controls on items such as fuel and transportation remain. However, the government has decided to decontrol the importation and pricing of fuel, although the modalities are still under discussion.
The latest preliminary and partial data indicate continuingly high monetary expansion, with broad money growing by 207 percent in the year through March 2003 (partly reflecting the effect of the March devaluation on the value of foreign currency accounts). Interest rates on longer-term treasury bill issues increased somewhat in May, but the repurchase rate was unchanged; interest rates remain highly negative in real terms.
The preliminary budget outturn for the first quarter of 2003 showed an overall deficit of 4½ percent of GDP at an annual rate, compared with an outturn of 4.8 percent in 2002. Revenue collections remained strong, while current spending rose somewhat. However, a large discrepancy remains between above-the-line and financing data, which needs to be reduced significantly before developments can be interpreted with confidence.
Due to continued drought conditions in the west and south of the country, the President has declared a state of disaster in the province of Matabeleland South reflecting high risks for livestock, food security, and water supply. However, the agricultural crop forecast for the current crop has not been completed yet.
The authorities are working on an updated macroeconomic framework. This is expected to be discussed by the cabinet later in June.
The cabinet has approved in principle the setting up of an electricity regulatory commission, and the sale to strategic partners of up to 50 percent of shares in two power stations owned by ZESA.
Zimbabwe paid the Fund US$3.0 million on May 28, 2003. This was the first significant payment to the Fund since mid-2002, and reflects a resumption of the authorities’ intended quarterly payments of US$1.5 million. The payment is small compared to debt service obligations falling due to the Fund (about US$32 million during June-December 2003) and to the stock of arrears (about US$234 million as of end-May 2003).
Reserve Bank Governor Tsumba went on leave at end-May until retirement at the expiration of his term at end-July. Deputy Governor Chikaura is acting Governor until a successor is appointed.
Wholesale prices for wheat flour were raised by about 90 percent, retail prices for maize meal by 400 percent, and for bread by 415 percent.