Statement by Mr. Majoro on Zimbabwe Executive Board Meeting, September 21, 2012
  • 1 0000000404811396 Monetary Fund

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2012 Article IV consultation with Zimbabwe, the following documents have been released and are included in this package


Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2012 Article IV consultation with Zimbabwe, the following documents have been released and are included in this package


On behalf of my Zimbabwean authorities, I thank the mission team for the focused and constructive discussions on macroeconomic developments and policy issues during the 2012 Article IV Consultation mission to Harare. My authorities are also very appreciative of the support the IMF Management and the entire staff has given to Zimbabwe over the years. As regards the staff reports, my authorities are in broad agreement with the analysis and policy thrust and would like the Executive Board to consider it with due regard to the severe political and economic difficulties (both domestic and external) the country is facing even as it tries to improve its relations with the Fund. The Fund’s support particularly in the lifting of all restrictions on technical assistance (TA) and a favorable disposition toward a Staff Monitored Program (SMP) is very critical to my authorities. In this sense, and based on Zimbabwe’s improved relations with the Fund, we request the Board to lift all TA restrictions on Zimbabwe.

Recent developments and outlook

Zimbabwe has come a long way since the hyperinflation era with an appreciable rate of economic growth and macroeconomic stability recorded between 2009 and 2011. This was made possible by a number of factors including policy reforms implemented, the formation of the coalition government in February 2009, the adoption of the multicurrency system and cash budgeting, and the discontinuation of quasi-fiscal activities by the Reserve Bank of Zimbabwe (RBZ). This was supported by sizeable off-budget grants and a favorable external environment. In 2011, the economy grew by an estimated 9 percent while inflation closed at 4.9 percent (year-on-year) in December. The widening of current account deficit to 35½ percent of GDP in 2011was accompanied by useable international reserves of just 0.3 months of imports at year end. The growth rate in 2012 is, however, expected to moderate to about 5 percent mainly on account of the negative impact on agricultural production of the drought in the south of the country and a slowdown in investment arising from uncertainty surrounding the implementation of the indigenization policy and the political process. Inflation is also expected to moderate further with the July figure standing at 3.9 percent while the current account deficit is projected to narrow to 20 ½ percent on the back of moderating imports and improved export performance.

Overall, the economic outlook is good and the growth potential is quite high. This could, however, be dampened if the identified downside risks to growth - the possible resurgence of political instability ahead of the elections, global economic downturn, potentially destabilizing effects of indigenization policy on the banking system and investment, as well as fiscal slippages and financial sector instability - materialize. My authorities are fully aware of these risks and have taken appropriate measures to address them.

Public Finances

Zimbabwe lacks fiscal space. Revenue underperformance – mainly diamond revenue -witnessed since the beginning of the year has put public finances under severe pressure. This is exacerbated by expenditure overruns, weak payroll and commitment controls, irregularities in employment practices, and losses by public enterprises due to inadequate oversight. In response, the authorities have scaled down the 2012 budget, taken steps to improve revenue collection, rationalize expenditure – often at the expense of growth enhancing public sector investments - and impose stricter expenditure control measures.

The most critical of these measures is improvement in the transparency of diamond revenue. Government is amending the relevant legislation to provide for the physical presence of the Zimbabwe Revenue Authority (ZIMRA) personnel at mining locations to monitor the various mining processes, including auctioning and processing of export customs documents. Mining fees and charges, revenue retention policy, and all aspects of VAT processes are being reviewed. Redrafting of the Income Tax legislation remains a government priority with the Income Tax Bill already approved by the Cabinet Committee. Both the recurrent and capital expenditures have been realigned and rationalized in line with the anticipated revenues while the limited cash flows have been ring fenced to finance some critical capital projects. To adequately manage the already over bloated wage bill, government has decided to maintain a general freeze on recruitment of staff into the public service, align any wage bill reviews to economic improvement and effectively implement the recommendations of the public service audit and conclude work on it.

Financial Sector Policies

The Zimbabwean financial sector has improved since the introduction of multicurrency system in February 2009 coupled with efforts to enhance the financial regulatory framework and recapitalize banks. Both deposits and credit to the economy have increased albeit modestly, although the lending rates are quite high. The banking sector is relatively sound and safe except for three banks – Interfin which is under curatorship, Genesis which has been deregistered, and Royal bank that has been closed for operating in an unsound manner. Overall, the weak and troubled banks are few, small in size and of low systemic importance although the impact of their failures on the banking public is enormous.

In spite of these positive developments, financial sector vulnerabilities persist. There are evidences of high credit risks, deteriorating asset quality, high non-performing loans, uneven distribution of deposits, liquidity crunch, and poor quality of corporate governance. This is compounded by the delay in the completion of the RBZ restructuring, and the RBZ’s limited capacity to perform lender of last resort (LOLR) functions.

The authorities are working assiduously to address these vulnerabilities. Already a phased recapitalization plan for all banking institutions through end-June 2014 is in place with a provision for merger and/or acquisition in the event that some banks fail to meet the recapitalization deadline. The RBZ is also strengthening its oversight (financial and regulatory) and liquidity management activities including through enhanced supervision and upward review of both the minimum prudential liquidity requirement and capital adequacy/tier 1 ratio in line with Basel III requirements. The recent directive for repatriation by banks of funds held in offshore accounts has helped improve liquidity in banks.

Government, through the Ministry of Finance is finalizing amendments to the Banking Act to improve RBZ’s oversight and surveillance over the financial sector and to also strengthen the Troubled and Insolvent Bank Resolution Framework. To further improve liquidity in the economy, Government issued bonds in March 2012 to reimburse the commercial banks for the US$83 million statutory reserves blocked at the RBZ. These bonds which are tradable have a maturity period of 2-4 years. Government has also established a US$150 million “LOLR Fund” in which private investors are expected to contribute US$120 million while the Ministry of Finance will contribute US$30 million (including $7 million already in the RBZ). The fund is meant to deal with emergency liquidity requirements of fundamentally solvent entities. The remaining challenge is identifying the private investors and establishing strong safeguards on accountability and governance of the Fund. Restructuring of the RBZ including the removal of both non-core assets and liabilities from the RBZ’s balance sheet is receiving adequate attention.

External sustainability and debt

The external position remains precarious with substantial balance of payments deficit, limited international reserves, and excruciating debt overhang. While current efforts to increase export earnings albeit modestly, and moderate import growth are encouraging, the likely surge in food imports due to the drought which affected agricultural production, and debt service requirements - in the phase of dwindling foreign capital inflows - would put severe pressure on external sustainability. Already the Joint IMF/World Bank DSA shows that Zimbabwe’s overall public debt is unsustainable going by the current fiscal policies and the current size and evolution of the debt stock.

My authorities are deeply concerned about the situation, particularly the issue of public debt to international financial institutions and contracting of new non-concessional loans. While the latter can be justified by the need to finance critical growth enhancing infrastructural projects given death of new credit lines to the country on concessional terms, the former is not in any way acceptable by my authorities. It is in this sense that the Zimbabwe Accelerated Arrears Clearance, Debt and Development Strategy (ZAADDS) was put in place. This was followed by a High Level Debt Forum hosted by the African Development Bank in Tunis on 23 March 2012, and a Forum with Development Partners held on the sidelines of the April 2012 IMF/World Bank Spring meetings in Washington DC. The aim is to accelerate arrears clearance and secure debt relief thereby creating opportunities for new financing and normalizing relations with creditors. So far, the outcome is quite encouraging as creditors and development partners have expressed their willingness to assist Zimbabwe.

Structural Reforms

My Zimbabwean authorities are committed to structural reforms. They understand that consistency in macroeconomic policies and a transparent legal and regulatory environment are prerequisite to sustained economic growth and development. In this regard, Government is taking measures to address uncertainties surrounding the implementation of the indigenization policy and the infrastructure deficit as a way of improving the business environment. Already some aspects of the Indigenization and Empowerment Regulations are being reviewed with a view to harmonizing and fine-tuning gray areas, including those relating to the Banking sector. Government has also ring-fenced expenditure on critical infrastructure projects - power, water, roads, railways, and information and communication technology - under its emergency response package. Overall, my authorities are of the view that the implementation of sound macroeconomic policies under the Zimbabwe Accelerated Re-engagement Economic Programme (ZAREP): 2012-2015 will support and sustain inclusive economic growth.

Relations with the IMF

Normalizing relations with the Fund and other IFS is of great importance to my authorities. As indicated in the Staff report, both Fund staff and the authorities agreed that the two markers for initiating discussions on a Staff Monitored Program (SMP) - adequate data reporting and removal of “ghost workers,”- had been met. The recent report from the Public Service Commission (PSC) indicates that some 6,000 irregularly employed youth officers have been removed from the payroll and that red flags raised in the Payroll and Skills audit have been either explained or addressed. The authorities have also resumed regular payments to the PRGT in line with previous commitments. Three payments totaling $7.5 million have so far been made in 2012. There is also a commitment by the authorities to persevere with efforts to address the identified policy slippages going forward. All these point to Zimbabwe’s improved relations with the Fund: a situation which opened the way for joint staff/authorities stocktaking exercise on the road to a possible SMP during the just concluded 2012 Article IV Consultation mission to Harare.

Finally, I would like to stress that my Zimbabwean authorities regard SMP as very critical to their economic restructuring and inclusive growth efforts. They are also aware that getting SMP depends on the lifting by the Board of all restrictions on technical assistance (TA) to Zimbabwe imposed in June 2002 which itself is also dependent on the favorable assessment by staff, and the conviction by the Board that Zimbabwe’s cooperation with the Fund has improved. We are of the view that Zimbabwe has done enough to warrant lifting of these restrictions. In this regard, we urge the Executive Board to consider lifting the TA restrictions which will pave the way for the commencement of discussion with the Zimbabwean authorities for a Staff Monitored Program.