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Tanzania: ‘Zimbabwe stuck in economic hardship, despite redoubled efforts’

Though the Zimbabwe government has redoubled its efforts to re-balance policies toward a stable macroeconomic environment conducive to private sector-led growth, economic conditions in the southern African country remain difficult, according to a latest assessment by staff of the International Monetary Fund (IMF).

“Growth has slowed down because of inadequate financial flows, despite a very favourable agricultural season,” said Domenico Fanizza, leader of the IMF mission that has been on a visit to Zimbabwe’s capital, Harare, from 17 Sept. and will be there through 1 Oct.

In a statement released Tuesday about the mission, a copy of which was made available to PANA here, Fanizza explained that the inadequacy of financial flows and the appreciation of the South African Rand, the major currency of Zimbabwe’s trading partner, has caused a liquidity crunch that has weakened economic activity.

“The external position remains precarious with low levels of international reserves, a large current account deficit, and external arrears,” said the IMF official, noting that Zimbabwean authorities intend to re-engage with the international community.

Already, according to the statement, the authorities took decisive fiscal measures on the revenue and expenditure sides to keep fiscal policy on track and to protect social expenditures, despite the large civil service wage increase earlier in 2014.

“The mission welcomes Zimbabwe’s decision to start working with the international financial institutions to prepare a plan for clearing the outstanding arrears, as a step toward resolving the country’s debt challenge,” said Fanizza.

He went on: “The reform efforts have started to lay the ground for stronger, more inclusive and lasting economic growth and addressing the economic challenges remains a priority for the government.

“It is encouraging that the authorities have come to the conclusion that Zimbabwe cannot address these challenges without the support of the international financial community.”

Fanizza said Zimbabwe’s policy reform agenda, which the authorities will monitor with the help of IMF staff under a proposed new 15-month Staff Monitored Programme (SMP) to end December 2015, comprises four major areas.

He mentioned the first area as balancing the primary fiscal budget.

“This will send a strong signal that Zimbabwe’s government intends to live within its means. Moreover, fiscal policy will focus on raising the efficiency and quality of public spending and rebalancing the expenditure mix toward infrastructure and social outlays,” he said.

The second area is about restoring confidence and stability in Zimbabwe’s financial sector.

On this, Fanizza explained that approval of the draft operational framework for the acquisition of nonperforming loans by the Zimbabwe Asset Management Company and other private asset management companies by the Reserve Bank of Zimbabwe (RBZ) Executive Committee/Board, submission to Parliament of amendments to the RBZ Act, and amendments to the Banking Act, will be instrumental in restoring confidence and bringing stability to the sector.

The IMF official mentioned the third area as addressing the country’s debt challenge by stepping up re-engagement with all creditors with the objective to normalise relations.

He said it would be essential for Zimbabwe to gather support to define a strategy for clearing its arrears with multilateral institutions.

Fanizza said the fourth area is about clarifying Zimbabwe’s indigenisation and economic empowerment laws in order to encourage mutually-beneficial partnerships between domestic and foreign investors.

“This step will go a long way toward allaying negative perceptions on the security of investments and property rights, provide legal transparency and predictability, and reassure markets of the government’s open invitation to invest in Zimbabwe,” he added.

After conducting the third and last review under the SMP approved by the IMF management in June 2013, which was followed by discussions with Zimbabwe authorities on a 15-month successor SMP, the Fund’s team will submit its report to management for approval by November 2014.

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