IMF Executive Board Concludes 2011 Article IV Consultation with Zimbabwe


Public Information Notice (PIN) No. 11/71

On June 1, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Zimbabwe.1


Stronger policies and a favorable external environment supported a nascent economic recovery during 2009–10. Real GDP growth accelerated from 6 percent in 2009 to 9 percent in 2010, and officially reported 12-month consumer price index (CPI) in U.S. dollar terms remained contained at 3 percent in December 2010. However, economic growth started from a low base and was concentrated on primary commodity sectors in mining and agriculture, both of which are sensitive to exogenous shocks. Structural impediments weighed heavily on manufacturing and utilities, which used to be the locomotives of growth and employment creation.

The humanitarian situation further improved in 2010. The burgeoning economic recovery, good harvest, donor off-budget support (9 percent of GDP), and increased provision of government services halted the deterioration of human development indicators.

Despite a favorable external environment, the external position remained precarious in 2010. Historically high commodity prices, the resumption in official diamond trade, a significant appreciation of the rand, and capital inflows eased somewhat balance of payments pressures in 2010. However, the current account deficit (23 percent of GDP in 2010) was large and financed in part by short-term capital flows, and the country’s usable international reserves amounted to 0.4 months of imports at end-2010. Zimbabwe is in debt distress with a large and unsustainable external debt stock (118 percent of GDP at end-2010), the bulk of which is in arrears (80 percent of GDP at end-2010).

After generating a small cash fiscal surplus in 2009, the central government had a cash deficit of about 0.4 percent of GDP in 2010. Commendable improvements in tax policy and administration have helped generate increases in fiscal revenues from 3 percent of GDP in 2008 to 29 percent in 2010. However, large employment costs (14.2 percent of GDP or 48 percent of revenues in 2010), the continued financing of weakly supervised state-owned enterprises and challenges in public financial management undermined the quality of expenditures and competitiveness.

The financial sector has grown significantly, but its vulnerabilities have recently increased. The multicurrency system helped jumpstart intermediation with the size of the banking system surpassing the prehyperinflation levels. With the appointment of a Reserve Bank of Zimbabwe (RBZ) governing board in May 2010, the RBZ has strengthened reporting and accounting and has completed staff downsizing. However, the RBZ has not published audited financial statements since 2008, its financial restructuring is at an early stage, and the status of nonperforming liabilities and severance packages remains unclear. Despite a notable strengthening of macroeconomic performance, vulnerabilities in the banking system have recently intensified, in part because of weak enforcement of prudential regulations.

Under the unchanged policies scenario, growth will most likely decelerate in 2011. An inefficient composition of expenditure, rising vulnerabilities in the financial system, and the recent announcement of the fast-track indigenization of the mining sector would be a drag on the recovery and cause growth to decelerate to 5.5 percent. Addressing these policy challenges in a timely manner could result in better growth outcomes for 2011. Key downside risks include possible political instability and a fall in commodity prices.