IMF team expected for Article IV consultations

An International Monetary Fund team is expected in the country next month for Article IV consultations. This will be the first time the team for this specific assignment would be in the country post the Robert Mugabe era.

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions
with members, usually every year to assess economic and financial developments in the country.

The IMF has been consistent on the need for Zimbabwe to embark on fiscal reforms. Last year, the IMF stressed the urgency of fiscal consolidation to restore policy credibility and economic stability. They noted that public sector employment costs remain at an unsustainable level, constraining social and infrastructure spending. On its part, Government has committed to cutting the wage bill by $330 million by 2020.

Directors encouraged the authorities to engage only in well-targeted, cost effective, and properly budgeted support to the agricultural and other productive sectors. They noted the potential to enhance tax revenues, and highlighted the need to strengthen public financial management and reform state-owned enterprises.

The IMF Directors stressed the need to contain broader, adverse spillovers from the fiscal imbalances. The ongoing deficit financing modalities, particularly the credit from the central bank, are unsustainable and have significant potential for generating inflationary pressures. The marked increase in public debt is crowding out private sector activity, aggravating liquidity shortages, and exacerbating debt distress. The dollar scarcity has led to administrative controls on current and capital account transactions.

Directors noted that unless adjustment and reforms are forthcoming, these conditions would further undermine economic performance and weaken confidence. Directors underscored the need to restore credibility of the currency regime and safeguard the
financial sector. Even as private sector credit growth remains subdued, bank asset concentration on non-liquid central bank deposits and treasury bills has increased financial sector fragility. The extensive use of quasi-currency instruments exacerbates this fragility.

Directors encouraged a proactive approach to managing these risks, including by bolstering the regulatory and supervisory framework, and closing loopholes in the AML/CFT framework. Directors also encouraged the authorities to roll back exchange controls.