Zim policies need to be changed, says IMF
Zimbabwean economic growth would most likely decelerate in 2011 if the government’s policies remained unchanged, the International Monetary Fund (IMF) said on Thursday.
The IMF executive board, after a visit to the country and discussions with officials, has estimated Zimbabwe’s real GDP growth at 6% for 2009 and 9% for 2010.
But the board warned that an inefficient composition of expenditure, rising vulnerabilities in the financial system, and the recent announcement of the fast-track indigenisation of the mining sector would be a drag on the country’s recovery and cause growth to decelerate to 5.5%.
Zimbabwe introduced the Indigenisation and Economic Empowerment Act last year, requiring all foreign firms valued at more than $500 000 to sell 51% of their shares to locals.
The IMF said vulnerabilities in the country’s banking system had recently intensified, partly due to weak enforcement of prudential regulations. It prioritised the restructuring of the financially distressed Reserve Bank of Zimbabwe—to which banks are exposed—and strengthening and enforcing prudential regulations to contain liquidity, solvency, and credit risks.
“These steps will help mitigate financial sector vulnerabilities and ensure the medium-term viability of the multi-currency system,” the IMF said.
The IMF suggested returning to cash budgeting and implementing strong expenditure controls, including elimination of ghost workers, to close the likely financing gap in the short-term.
The IMF added that Zimbabwe needed to reduce its wage bill relative to revenues, tighten budget constraints on state-owned enterprises, and implement public finance management reforms to generate fiscal surpluses in the medium term. This would help raise international reserves and increase resilience to economic shocks.
“Improving the business climate is necessary for strengthening competitiveness and boosting growth potential,” the IMF directors concluded.—I-Net Bridge