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Harare - The International Monetary Fund (IMF) said economic activity in Zimbabwe is projected to remain subdued, in the medium term, pending adjustment and reform that will enable the economy to restore fiscal and external sustainability and achieve its growth potential.
According to the latest report issued by the IMF, following the conclusion of the Article IV Consultation of Zimbabwe on July 5 2017, Zimbabwe is experiencing cash shortages as a result of the expansionary fiscal stance, which has curtailed net capital flows, and dampened investor confidence.
“Budgetary operations are crowding out the private sector, and the expenditure profile tilted towards employment costs and unsustainable agricultural support is inhibiting investments in other priority sectors, particularly infrastructure and social outlays,” said the IMF.
The IMF acknowledged that while progress on advancing structural reforms, notably to improve the business climate, has been made, progress on implementation of laws applicable to non-indigenous investors, improvements in the functioning of state-owned enterprises, and upgrades in public financial management, governance and accountability remain limited.
The IMF directors stressed the urgency of fiscal consolidation to restore policy credibility and economic stability. They also stressed the need to contain broader, adverse spillovers from the fiscal imbalances.
With limited access to foreign inflows, the ensuing fiscal imbalances have become unsustainable, and are being financed by rising domestic borrowing.
“The marked increase in public debt is crowding out private sector activity, aggravating liquidity shortages, and exacerbating debt distress. Unless adjustment and reforms are forthcoming, these conditions would further undermine economic performance and weaken confidence.”
Giving advice, the IMF said determined reform implementation and reengagement with the international community will help to unlock external financing, fostering investment, and resolving the country’s debt overhang.
The IMF however cautioned against clearing arrears using modalities which exacerbate debt problems. “The ongoing deficit financing modalities, particularly the credit from the central bank, are unsustainable and have significant potential for generating inflationary pressures.”
Zimbabwe’s economy is facing difficulties. A severe drought and slow reform momentum have led to high expenditure levels since late 2015 despite subdued revenues.
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