IMF Executive Board Concludes 2010 Article IV Consultation with Zimbabwe


Public Information Notice (PIN) No. 10/62

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On May 17, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Zimbabwe.


As a result of significant improvements in policies, real gross domestic product (GDP) is estimated to have grown by about 4 percent in 2009, following a contraction of about 14 percent in 2008. Strong growth was reported in manufacturing and services. The officially reported 12-month consumer price index (CPI) in U.S. dollar terms declined by about 8 percent in December 2009.

The humanitarian situation has improved. Most schools and hospitals have been re-opened. Owing to good rainfall and positive effects of better policies in 2009, food security improved. Incidence of cholera has declined. In 2009, donors provided significant off-budget financing for social services and humanitarian assistance (about US$540 million, or 12 percent of GDP) to help fill some of the gap left by severely constrained fiscal resources.

The government broadly adhered to cash budgeting in 2009. Budget revenue and grants increased from less than 4 percent of GDP during hyperinflation in 2008 to an estimated 22 percent of GDP (US$975 million) in 2009, mainly on account of indirect taxes. The improved revenue performance is attributable to the stabilization of prices and strong tax policy and administration measures (1.3 percent of GDP), which were largely implemented following IMF technical assistance advice. Budgetary cash expenditures--21 percent of GDP (US$920 million)-were skewed toward employment costs (53 percent of revenue), as the government transformed a uniform US$100 per month allowance into wages and implemented large differentiated wage and pension increases on July 1, 2009. As a result, capital expenditures only accounted for 1 percent of GDP and many social programs remained underfunded. The government has strengthened its public financial management system with World Bank assistance.

The multi-currency regime helped promote financial intermediation. Deposits with banks tripled between end-March and end-December 2009, and banks' loan portfolios grew six-fold (although from a very low base). Strong credit growth supported the nascent economic recovery, but it also contributed to a widening current account deficit and rising vulnerabilities in the banking system.

Serious governance problems have remained at the Reserve Bank of Zimbabwe (RBZ). Accounting and internal controls are weak, and there was no approved budget for RBZ operations in 2009. The RBZ's quasi-fiscal activities amounted to 0.5 percent of GDP, substantial resources were used for debt repayments to selected creditors, and its arrears on operating expenses increased significantly in 2009. However, the appointment of an RBZ Board on May 3, 2010 is a step toward resolving RBZ governance issues and refocusing its activities on its core functions under the multi-currency regime.

The external position remains precarious. Volatile short-term capital inflows and external payment arrears financed the current account deficit that is estimated to have widened to 30 percent of GDP in 2009, from 24 percent in 2008. Significant capacity constraints, in part related to a weak business climate, depressed export earnings in 2009, while rapidly increasing domestic credit and capital inflows, as well as higher humanitarian aid, financed increased import demand. The external debt continued to grow mainly as a consequence of new payment arrears and interest and penalty charges on existing payment arrears, but new private sector short-term borrowing also added to the external debt estimated at US$7.1 billion (162 percent of GDP) by end-2009.

The outlook for 2010 is highly uncertain. Large budgetary wage increases crowding out growth-oriented expenditures, a significant slowdown in private capital inflows because of increased uncertainties about the indigenization process, and strong credit growth have intensified external and banking system vulnerabilities. In the absence of timely corrective policy measures, economic growth would slow down significantly in 2010 and risks in the banking system would continue to rise.