Selected Issues and Statistical Appendix

This Selected Issues paper analyzes economic and agricultural developments, and the impact of land reforms of Zimbabwe. The paper summarizes the quantitative estimates of the fiscal burden and overall medium-term macroeconomic impact of HIV/AIDS on Zimbabwe. It reviews the debt restructuring, fiscal sustainability, and the vulnerabilities of Zimbabwe's banking system. It analyzes the situation of major public enterprises and the foreign exchange system in Zimbabwe. It also provides a statistical appendix for Zimbabwe.


This Selected Issues paper analyzes economic and agricultural developments, and the impact of land reforms of Zimbabwe. The paper summarizes the quantitative estimates of the fiscal burden and overall medium-term macroeconomic impact of HIV/AIDS on Zimbabwe. It reviews the debt restructuring, fiscal sustainability, and the vulnerabilities of Zimbabwe's banking system. It analyzes the situation of major public enterprises and the foreign exchange system in Zimbabwe. It also provides a statistical appendix for Zimbabwe.

1. Overview of Economic Developments1

A. Introduction

1. The decline of real activity in Zimbabwe continued at an accelerated pace in 2002 as a result of inappropriate economic policies, including loose fiscal and monetary policies, an overvalued exchange rate, and increasing administrative controls, which have given rise to large imbalances throughout the economy (Table I.1). Weak investor confidence and international isolation, combined with a deterioration in the political climate (reflecting the parliamentary election in 2000 and the disputed presidential election in 2002), concerns over weak governance and the implementation of the fast-track land reform program, and widespread droughts in 2001–2, aggravated these problems. The decline in real output deepened from about 4 percent in 1999 to an estimated 13 percent in 2002, bringing the cumulative decline in real GDP to about 30 percent. Real GDP per capita has declined by 26 percent over the last 4 years; sharply contrasting with the developments in the rest of sub-Saharan Africa (Figure I.1).

Table I.1.

Zimbabwe: Selected Economic Indicators, 1998–2002

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Sources: Zimbabwean authorities; and staff estimates.

Foreign currency units are converted into Zimbabwe dollars at the official exchange rate. Variables in the last column thus reflect valuation adjustments.

GDP at world prices using real GDP growth and trading partner countries’ inflation (base year is 1996).

Figure I.1.
Figure I.1.

Selected Economic Indicators

Citation: IMF Staff Country Reports 2003, 225; 10.5089/9781451841480.002.A001

2. The droughts of 2001–2, high HIV/AIDS prevalence rates, and high unemployment and inflation worsened the humanitarian situation in Zimbabwe. The Government of Zimbabwe declared a state of emergency in April 2002, following estimates that the domestic cereal gap amounted to about two-thirds of domestic requirements, and that over half of the total population (about 7 million people) would require food aid for the 2002/03 marketing season (April to March). However, the country’s ability to deal with the severe food shortage was limited by the monopoly position of the Grain Marketing Board (GMB), which was reintroduced in March 2001 as part of the government’s strategy to contain basic food prices, and by constraints on the activities of nongovernmental organizations (NGO) to import and distribute food. The shortage of foreign exchange in the official market also hampered the government’s efforts to import food. The uncovered cereal gap in 2002/03, including imports totaling 800,000 tons, was estimated at 135,000 tons (6 percent of total domestic requirement) in February 2003.

3. Inflation has risen steadily since the second half of 2001. This reflected loose financial policies, drought, a sharp depreciation of the currency in the parallel foreign exchange market, and a move of economic activity to the informal market following the extension of price controls and the tightening of exchange restrictions in November 2002, Year-on-year inflation had remained around 50 percent in the first half of 2001, but then rose to 228 percent in March 2003 (Figure I.1).

4. The government responded to the serious economic crisis by revitalizing the Tripartite Negotiating Forum (TNF) and adopting a National Economic Revival Program (NERP) in February 2003.2 The main elements of the NERP comprise measures aimed at stimulating sectoral production while endorsing the Prices and Income Stabilization Protocol (which was negotiated within the TNF in January 2003 and provides for a freezing of prices and wages for a period of 6 months). Immediate actions taken include the devaluation of the exchange rate from Z$55 per US$1 to Z$824 per US$1 for most transactions and the doubling on average of fuel prices in February 2003. This was followed by increases in maize and wheat producer prices (retail prices were not changed), a gradual rise in nominal interest rates, which still remain very negative in real terms, and another doubling of fuel prices in April, albeit insufficient to allow full cost recovery. On May 6, the government announced an easing of price controls.

B. Output, Employment, and Prices

5. All sectors of the economy have been affected by the decline in economic activity. On the supply side, production has been severely constrained, particularly on account of the bottlenecks created by the limited availability of foreign exchange, the introduction of price controls, and the impact of the land reform program on the agricultural sector. The fall in real output has been spread across the economy, but has been particularly pronounced in the agricultural, manufacturing, and distribution, hotels and restaurants sectors—output in these sectors account for nearly half of real GDP (Statistical Appendix, Table 2). The tourism industry has suffered as domestic developments adversely affected Zimbabwe’s image abroad.

6. The decline in agricultural output deepened from 12 percent in 2001 to 22 percent in 2002 as production has suffered from the drought and has been negatively affected by the land reform and shortage of critical imports. The volume of production in the commercial farming sector, which was heavily affected by the redistribution of land, declined by 25 percent in 2002, bringing the decline to nearly 70 percent since the launch of the fast-track land reform program in 2000. Productivity was also negatively affected by the inexperience of many newly settled farmers, and by malnutrition and HIV/AIDS, which reduced the population’s ability to farm.

7. The manufacturing sector has been influenced by the weak macroeconomic environment, and the decline in agriculture because of the linkages between these two sectors. Manufacturing output is estimated to have declined by 16 percent in 2002 after a decline of 9 percent in 2001. Partial data indicate that following the closure of 400 companies in 2001, an additional 200 companies closed during the first half of 2002. In March 2003, Zimbabwe’s Electricity Supply Authority (ZESA) began to implement load shedding for electricity.3

8. The value added of distribution, hotels and restaurants declined by 16 percent in 2002. This mostly reflected a further decline in real disposable income in light of the high rate of unemployment and sharp rise in inflation. The shortage of fuels and decline in tourism have also contributed.

9. All components of real aggregate demand contributed to the decline of real GDP in 2002. Government consumption expenditure declined by 22 percent, while private consumption expenditure declined by 5 percent in view of the continued fall in real disposable income. Gross fixed investment declined by an estimated 7½ percent, and it fell from 15 percent of GDP in 2000 to an estimated ½ percent in 2002. The external sector also made a negative contribution to real GDP growth in 2002, in large part due to a substantial decline in exports following the collapse of commercial farming activity.

10. Formal sector employment has fallen substantially. Total formal employment in the private sector has declined by a cumulative 15 percent from 1999 to June 2001 (the latest available data). Declines were recorded in all of the subsectors of the economy, but were particularly pronounced in mining, electricity generation, construction, and manufacturing. Employment in agriculture declined by around 12 percent to June 2001, not yet reflecting the subsequent impact of the land reform program. If account is taken of the approximately 300,000 displaced farm workers, formal employment in the private sector could well have declined by more than one-third by end-2002.

11. Inflation accelerated further during 2002. Lax monetary policy, due mostly to large quasi-fiscal operations and subsidized lending facilities for the private sector, continued supply bottlenecks and shortages, and the impact of the drought on food prices, have combined to significantly raise price pressures in the local economy and on the parallel market exchange rate. The 12-month inflation accelerated from 112 percent at end-2001 to 228 percent in March 2003; the rise in food prices dominated, in particular toward the end of the year (Figure I.1).

12. The Government responded to the acceleration of inflation by tightening price controls in November 2002. Price controls, which were initially imposed on selected consumer goods in October 2001, were extended to a significant number of items in November 2002, as the government imposed a temporary price freeze on most consumer goods and services. The action was intended to strengthen the government’s control over commodity prices and the evasion of price controls by business through repackaging and relabeling products. This, however, had a predictable effect: shortages increased as transactions quickly moved to the informal market, where prices were significantly higher.

13. Reflecting the exchange rate adjustment in February 2003, fuel prices were doubled in February and again in April. In early May, an easing of price controls was announced:

  • prices for basic goods (maize, maize meal, wheat, flour and bread) continue to be controlled;

  • monitored prices were introduced for essential goods (agricultural chemicals and implements, seeds, beef, coal, cement, cooking oil, drugs, fertilizers, milk, packaging, stockfeeds, sugar, salt and tires). Producers have to make their case for price increases to the Ministry of Industry and International Trade (MIIT) with profit margins not exceeding 20 percent; and

  • all other prices were decontrolled, but made subject to MIIT surveillance and (unspecified) “corrective measures to prevent profiteering.”

C. Fiscal Policy

14. While the government budget achieved a broadly balanced primary position in 2002, similar to 2001, it conceals the impact of sizeable quasi-fiscal operations of the RBZ for gold and tobacco producers outside the budget. Including these operations, the primary fiscal deficit rose from ½ percent of GDP in 2001 to 5 percent of GDP in 2002; the overall deficit remained at 10 percent of GDP (Table I.2).

Table I.2.

Zimbabwe: Central Government Operations, 1999–2002

(In percent of GDP)

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Sources: Zimbabwean authorities; and staff estimates.

The large discrepancy between actual and budgeted interest expenditure during 2001–3 reflects overestimation of these outlay in the budget.

Commitments with respect to foreign interest payments.

Gross proceeds from privatization that do not take into account possible debt-equity swaps and debt takeovers.

As percent of current expenditure.

Excluding grants (commitment based). “Quasi-fiscal operations” refer to the support schemes provided by the Reserve Bank of Zimbabwe to tobacco and gold during 2001–2 and the utilization of foreign exchange surrender at the rate of Z$55 per US$1.

15. On the revenue side, the improved fiscal outturn reflected stronger than budgeted revenue performance. Total revenue collections amounted to 28 1/3 percent of GDP, compared with the budget estimate of 27 percent of GDP. Corporate and personal income tax receipts (24 percent of GDP) were much higher than budgeted largely as a result of bracket creep (i.e. delayed adjustment of income tax brackets for inflation) and of the strong income performance of banks. The Zimbabwe Revenue Authority became fully operational in 2002, which also helped revenue collections through improved efficiency. Customs duty collections, on the other hand, were 2.7 percent of GDP lower than budgeted, and substantially below their levels in 2001, as the continued shortages of foreign exchange reduced private imports (food imports are exempted from customs duties) and the maintenance of a fixed exchange rate kept customs valuations of imports low in local currency terms.

16. Total expenditure continued to decline. For the most part, this reflected low interest rates and thus low interest outlays on domestic debt. Expenditures on goods and services, and subsidies and transfers increased slightly in 2002 relative to GDP as part of the savings in the interest bill were reallocated for noninterest outlays in the supplementary budget. The civil service wage bill declined further in 2002 as percent of GDP, and the resulting real wage compression has begun to hamper the recruitment and maintenance of critical staff, particularly in the health and education sectors. Capital expenditure fell significantly below budget, reflecting shortage of foreign exchange and rising costs.

17. In the absence of foreign financing and progress with the privatization of enterprises in 2002, the deficit had to be financed largely from domestic sources and through the accumulation of arrears on external debt service. Nonetheless, with highly negative real interest rates the domestic debt stock declined from 52 percent of GDP in 2000 to 36 percent in 2002.

18. The condition of the largest public enterprises in Zimbabwe remained precarious although the net profits remained unchanged at ¾ percent of GDP in 2002. This reflected improvements in the financial position of the oil company and telecommunications, while other public enterprises continued to be adversely affected by the weak economic environment and price controls.4

D. Financial Sector

19. Monetary policy remained accommodative throughout 2002, and let nominal interest rates remain at very low levels; real interest rates became increasingly negative as inflation accelerated further (Figure I. 1). As a result, reserve money grew by 171 percent in 2002 (Table I.3). This mostly reflected a rapid rise in currency in circulation (216 percent). Broad money growth accelerated from 103 percent at end-2001 to 165 percent at end-2002, as credit to the private sector expanded rapidly from 67 percent in 2001 to 181 percent in 2002; however, private sector credit continued to decline in real terms.

Table I.3.

Zimbabwe: Monetary Survey, 1999–2002

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Sources: Zimbabwean authorities; and staff estimates.

Reserve Bank of Zimbabwe’s net foreign assets and net domestic assets have been adjusted for memorandum of deposits. Includes valuation effects.

20. During 2002 the RBZ contributed to monetary growth through several ad hoc schemes. In particular, banks continued to utilize their statutory reserves at the RBZ for on-lending at highly subsidized interest rates; utilization of the export and productive sector facilities at end-December 2002 amounted to Z$32 billion (3 percent of GDP), or 56 percent of end-2001 reserve money.5 This represented a significant relaxation of monetary policy as the effective reserve requirement ratio declined to about 15 percent in December 2002 (compared with an indicative weighted ratio of about 33 percent).6

21. Support schemes for gold and tobacco producers added Z$51 billion to liquidity in 2002, which was nearly 5 percent of GDP. The floor price support scheme for gold was re-introduced by the RBZ in April 2001 to support the gold mining industry. The gold subsidy in 2002 amounted to Z$13 billion (1.2 percent of GDP). Furthermore, a special facility for tobacco exporters was introduced in May 2002, as tobacco producers were unable to cover their production costs at the fixed exchange rate of Z$55 per U.S. dollar. The subsidy scheme entailed a 186 percent premium over the official exchange rate for tobacco proceeds and cost Z$38 billion (3.5 percent of GDP) in 2002.

22. The RBZ announced in November 2002 a dual interest rate policy, which would continue concessional credit to the productive and export sectors, while rates for non-essential or consumption borrowing would be determined by the market. The RBZ suspended the Bank Rate, and the interest rate arising from repurchase operations to accommodate banks’ intra-day market positions has become the key monetary policy interest rate. End-of-day liquidity shortfalls of the banks have been accommodated through the overnight window at a premium over the repurchase rate.

23. The weak macroeconomic situation represents a challenge to the soundness and viability of the banking system in view of the risks it poses for the quality of the banking system’s assets. Low interest rates have discouraged savings and encouraged borrowing even in the face of the continued decline in real activity. Banks’ capital base have been eroded by inflation and the January 2003 increase in the minimum paid up capital does not fully compensate for past inflation since the previous increase of August 1999. While the indicators of the health of the banking system do not signal an imminent crisis in the banking system, their analytical value has been eroded by inflation and by underprovisioning.

E. External Sector

24. The decline in exports and virtual lack of foreign financing has resulted in severe import compression and rapid build-up of external payment arrears. The balance of payments remained under severe pressure in 2002. The current account deficit widened from 4.9 percent of GDP in 2001 to an estimated 6.7 percent in 2002 (Table I.4).7 While the value of reported imports increased by 2.4 percent, this was mainly due to food imports; other imports declined by 11.3 percent. Following a decline by nearly one-third in 2001, exports declined by 12 percent in 2002 (Figure I.1).

Table I.4.

Zimbabwe: Balance of Payments, 1999–2002

(In millions of U.S. dollars, unless otherwise indicated)

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Sources: Zimbabwean authorities; and staff estimates.

Include flows associated with underinvoicing of exports and arrears on short-term private debt.

End of period.

Gold valued at market prices.

Reported by the Reserve Bank of Zimbabwe. Excludes arrears.

Scheduled medium- and long-term amortization plus all interest payments.

Nominal U.S. dollar GDP adjusted for real growth and international inflation (1996 base year).

25. The loss of investor confidence due to the worsening macroeconomic instability, serious domestic political tensions, and the sharp curtailment of donor assistance (it was limited to humanitarian causes), continued to deter capital inflows. In 2002, both short- and long-term capital flows recorded large outflows, as was the case in 2001. The overall deficit rose from 5 percent of GDP in 2001 to 6 percent in 2002. Given the critically low level of usable reserves (which at end-2002 amounted to only US$15 million, or equal to three days of imports), the deficit was financed through the continued accumulation of external payments arrears, which increased to US$1.5 billion at end-2002, or almost one-third of total external debt.

26. The exchange rate peg (at Z$55/US$1 during October 2000 to February 2003) and intensification of surrender requirements on exports have undermined the inflows of foreign exchange into the official market. The real effective exchange rate appreciated sharply reflecting rapid inflation in Zimbabwe. The rate in the parallel foreign exchange market depreciated to about Z$l,700 per US$1 at end-2002, or 30 times the official exchange rate. The closure of foreign exchange bureaus at the end of November 2002, the increase in the surrender requirement on exports proceeds from 40 percent to 50 percent, and the transfer of exporters’ foreign currency accounts to the RBZ8 caused a collapse of the inflows of foreign exchange into the official market, and as transactions moved to the parallel market, and resulted in an appreciation of the parallel market rate. In turn, these pressures led the government to devalue the official exchange rate for most transactions from Z$55 per US$1 to Z$824 per US$1 in February 2003. However, this did not generate a supply response in the official market as of early May, and public enterprises purchased foreign exchange for fuel and electricity imports in the parallel market.

27. Remittances from Zimbabweans living abroad (private transfers) have become an important source of foreign financing for private imports in the past three years. The decline in economic activity in Zimbabwe and poor employment prospects have fueled emigration, particularly of skilled workers. Furthermore, the large premium on the parallel foreign exchange market has provided an incentive for private transfers to flow through informal (unrecorded) channels; while data on the inflows of expatriate remittances are not available, staff estimates that remittances accounted for about 3 percent of GDP in 2002.


Prepared by Louis Erasmus and Gustavo Bagattini.


The TNF consists of representatives from the government, organized business, and trade unions, and was established in 1998 to achieve consensus on issues of national importance.


See Selected Issues Paper on public enterprises.


Section VI discusses the operations of public enterprises in detail.


In January 2001, the central bank released the total of required reserves to the banking system for on-lending at concessional rates to the export sector (15 percent) and to the productive sectors (30 percent). In November 2002, these rates were further reduced to 5 percent and 15 percent, respectively, although the RBZ announced that the facility would be converted into a revolving fund with a cap of ZS25 billion. The cap was raised to Z$50 billion in the context of the National Economic Revival Program (NERP) of February 2003.


According to the Monetary Policy Statement for 2001, the statutory reserve ratio on demand deposit liabilities was set at 50 percent, and at 20 percent on time and savings deposits.


Using nominal GDP at world prices as measure (1996=100), rather than nominal GDP converted at the current exchange rate in view of the high inflation in Zimbabwe and overvalued official exchange rate.


Exporters could use these funds with RBZ approval for certain import needs as specified in the priority list.