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IMF Concludes 2004 Article IV Consultation with Zimbabwe
International Monetary Fund (IMF)
Public Information Notice PIN No.04/297
September 17, 2004

http://www.imf.org/external/pubs/cat/longres.cfm?sk=17725.0

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Executive summary
On July 7, 2004, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Zimbabwe.

• 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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