Abstract
IMF Country Report No. 19/144
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IMF Country Report No. 19/144
ZIMBABWE
STAFF-MONITORED PROGRAM—PRESS RELEASE AND STAFF REPORT
May 2019
In the context of the Staff-Monitored Program, the following documents have been released and are included in this package:
A Press Release.
The Staff Report prepared by a staff team of the IMF, issued and circulated as for information to the Executive Board on May 22, 2019, following discussions that ended on April 5, 2019, with the officials of Zimbabwe on economic developments and policies underpinning the IMF arrangement under the Staff-Monitored Program. Based on information available at the time of these discussions, the staff report was completed on May 21, 2019.
The documents listed below have been or will be separately released:
Letter of Intent sent to the IMF by the authorities of Zimbabwe*
Memorandum of Economic and Financial Policies by the authorities of Zimbabwe*
Technical Memorandum of Understanding*
*Also included in Staff Report
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2019 International Monetary Fund
Title Page
ZIMBABWE
STAFF-MONITORED PROGRAM
May 21, 2019
Executive Summary
Zimbabwe faces deep macroeconomic imbalances. After a period of relative macroeconomic stability when hyperinflation was broken in 2008 with the move to full dollarization, the fiscal situation has deteriorated sharply since 2015. Large fiscal deficits during 2016–18, financed by the issuance of quasi-currency instruments nominally at par to the U.S. dollar, built up pressure in the dollarized economy. The fragile equilibrium was maintained by exchange controls and other restrictions on access to foreign exchange (FX).
Significant economic reforms are underway. The new government that was sworn into office following the July 2018 elections tightened the fiscal stance since September 2018 and introduced a new domestic currency (the “RTGS dollar”) in February 2019. The authorities are also advancing on structural reforms as elaborated in their Transitional Stabilization Program (TSP), which seeks to achieve macroeconomic stability and aims at reforming and privatizing state-owned enterprises (SOEs), addressing corruption in procurement and revenue administration, and promoting private-sector investment by improving the business climate.
The authorities request an SMP covering the period May 15, 2019 to March 15, 2020. Staff supports this request, which would assist the authorities to implement key reforms outlined in their TSP, and help Zimbabwe build a track record of sound economic policies as it seeks to normalize relations with external creditors. The revised 2019 budget adopted by Cabinet on April 23 entails further fiscal consolidation by containing the wage bill, reducing transfers to SOEs and improving the design of agricultural subsidies, while protecting vulnerable households and infrastructure spending. The revised budget is anchored on stopping central bank financing of the budget, which is critical to support the new currency.
Risks to the SMP are very high. The large fiscal adjustment needed will be politically and socially difficult to implement. In response to the materialization of two external shocks—the El Niño related drought and the extensive damage inflicted by Cyclone Idai in March 2019—the government increased spending for recovery and protection of the most vulnerable, but the funds available are significantly below estimated needs. With limited access to external financing and the very low level of international reserves, the authorities’ room for maneuver is very narrow. There are also significant implementation risks of the monetary and exchange rate reforms, as well as addressing governance and corruption weaknesses, which could adversely impact the attainment of SMP objectives.
Approved By
David Robinson (AFR) and Maria González (SPR)
Prepared By
African Department
Discussions took place in Harare during November 7–20, 2018 and April 1–5, 2019. The missions met with Finance Minister Ncube; Reserve Bank of Zimbabwe Governor Mangudya; other senior government officials; and representatives of the donor community and the private sector. The staff team comprised H. Leon (head), N. Hobdari, T. Lessard, F. Lima (all AFR), Y. Jung, D. Gurara (both SPR), E. Karlsdóttir and I. Gudbjartsdottir (both MCM). P. Imam, P. Chishawa, and B. Banda (IMF Resident Representative in Harare office and local staff) assisted the mission. D. Robinson (AFR) and W. Nakunyada (OED) participated in key policy discussions. L. Almeida, J. Vibar, and S. Ourigou (all AFR) assisted from headquarters.
Contents
CONTEXT
RECENT ECONOMIC AND POLITICAL DEVELOPMENTS
THE STAFF-MONITORED PROGRAM
A. Macroeconomic Outlook and Risks
B. Fiscal Policies: Restoring Macroeconomic Stability
C. Monetary and Exchange Rate Policies: Restoring Stability
D. Financial Sector Policies: Maintaining Financial Stability
E. Structural Reforms: Promoting Inclusive Growth
PROGRAM AND OTHER ISSUES
STAFF APPRAISAL
BOXES
1. Current Debt Situation
2. Impact of Cyclone Idai on Zimbabwe
3. Nominal GDP in Domestic Currency
4. Agricultural Support
5. Pension and Devolution Reforms
FIGURES
1. Fiscal Challenges
2. Evolution of Selected Economic and Social Indicators
3. Recent Macroeconomic Developments
4. Government Revenue and Spending in Zimbabwe Relative to Peers
5. Banking Sector Fragility
TABLES
1. Selected Economic Indicators, 2015–20
2. Balance of Payments, 2015–20
3a. Central Government Operations, 2015–20 (Millions of RTGS$)
3b. Central Government Operations, 2015–20 (Percent of GDP)
4. Monetary Survey, 2015–19 (Millions of RTGS$; unless otherwise indicated)
5. Financial Soundness Indicators
ANNEX
I. Capacity Development Strategy for 2019
APPENDIX
I. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding