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Zimbabwe: 2004 Article IV Consultation
Staff Report; and Public Information Notice on the Executive Board Discussion
IMF Country Report No. 04/297, September 2004
Prepared by the Staff Representatives for the 2004 Consultation with Zimbabwe
Approved by Michael Nowak and Juha Kдhkцnen
June 10, 2004
SARPN acknowledges the IMF website as the source of this document: www.imf.org
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Discussions were held in Harare during March 16–31, 2004. The staff met with the Ministers of
Finance and Economic Development; Land, Land Reform and Resettlement; Anti-Corruption and
Anti-Monopoly Policy; Industry and International Trade; Health; the Governor of the Reserve Bank of
Zimbabwe, and other senior government officials. It also met with representatives of NGOs, the
business and financial sector, political parties, trade unions, and the diplomatic community.
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The team consisted of D.C. Ross (head), F. Ahmed, J-F. Dauphin, A. Jayaratnam (all AFR),
H. Treichel (FIN), D. Rozhkov (MFD), and P. Khandelwal (PDR). J. Mafararikwa, Advisor to the
Executive Director for Zimbabwe, and World Bank staff participated in some of the discussions.
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Zimbabwe is on the standard 12-month consultation cycle. At the conclusion of the 2003 Article IV
consultation on June 6, 2003, Executive Directors expressed deep concern about the continued sharp
decline in economic activity and per capita income, the rise in poverty and human suffering, the
repeated shortages of food, the acceleration of inflation, and the accumulation of external payments
arrears. They noted that the deteriorating situation was the result of inappropriate economic policies,
aggravated by violence and disruptions to productive activity related to the government’s fast-track
land reform program. They urged the authorities to implement policy changes to prevent a worsening
of the situation.
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Zimbabwe has accumulated overdue financial obligations to the Fund since February 2001; these
arrears totaled SDR198 million as of end-May 2004. Following a decision by the Executive Board on
December 3, 2003, the Managing Director issued a complaint on February 6, 2004 that initiated the
procedure on Zimbabwe’s compulsory withdrawal from the Fund.
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Zimbabwe accepted the obligations of Article VIII, Sections 2, 3, and 4, but maintains exchange
restrictions and multiple currency practices subject to Fund approval. In the absence of a timetable to
remove the restrictions, the staff does not recommend their approval by the Fund. In addition, it has
incurred external payments arrears on official debt.
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Zimbabwe’s economic data suffer increasingly from poor coverage, time lags, and worsening
reliability of reporting units, all of which hamper Fund surveillance.
Executive summary
Zimbabwe’s overall economic and social situation has continued to deteriorate.
Real GDP fell by some 30 percent over the last 5 years, and another decline of 4-
5 percent is projected this year. Structural changes have weakened the economic base;
in particular, the disorderly implementation of the land reform program has sharply
reduced agricultural production and contributed to widespread food shortages.
Concerns about economic and political governance have discouraged productive
investment and promoted capital flight and emigration. Inflation reached 600 percent
in November 2003, but has eased in recent months. Real wages and formal sector
employment have fallen sharply, and social conditions are dire. The food security
situation remains difficult, but sizable donor assistance has helped meet food and
other humanitarian needs over the last two years. Poverty levels continue to rise and
the HIV/AIDS pandemic remains largely unchecked.
Economic policies lack consistency and have not adequately dealt with these
challenges. Loose monetary policy in 2003 provided credit to the private sector at
very low nominal interest rates and accommodated inflationary pressures. The
Reserve Bank (RBZ) has made inflation reduction its prime target since December
2003 and has tightened monetary policy, but not consistently and without support
from fiscal policy. The managed foreign exchange tender introduced in January 2004
led to an appreciation of the average exchange rate as the parallel market was sharply
curtailed and driven underground. Reflecting the impact of higher-than-budgeted
inflation, fiscal operations were almost balanced in 2003, but the 2004 budget is
expansionary. Progress was made in 2003 in reducing price controls, but corruption is
widespread and the monopoly of the Grain Marketing Board (GMB) remains in place.
The policy discussions focused on arresting the economic decline and restarting
growth. The mission welcomed some of the steps taken since late 2003, including
strengthened supervision of financial institutions, but urged more action on fiscal,
monetary and exchange rate policies. It advised to monitor closely the impact of
tighter monetary conditions on the banking sector and to preserve social spending
from the fiscal tightening. It also recommended the implementation of necessary
structural reforms to increase productivity throughout the economy, particularly in
agriculture, where problems relating to the land reform program and property rights
have continued to hamper production. The authorities broadly agreed with the thrust
of the mission’s assessment, but differed on the timing and some of the specifics of
the recommendations on financial policies and especially on structural issues. They
felt that in the short run export incentives should be provided through ad-hoc support
schemes rather than full exchange rate adjustment, and that the dual interest rate
policy was still needed to support production. They indicated no immediate intention
to revise the 2004 budget, nor to dismantle the GMB monopoly, and have yet to
fundamentally address the problems that resulted from the implementation of the land
reform.
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