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Zim pays another US$2.5m to IMF
Nelson Banya,The Financial Gazette (Zimbabwe)
January 19, 2006

http://www.fingaz.co.zw/story.aspx?stid=556

THE government has made another US$2.5 million payment to the International Monetary Fund (IMF), ahead of a routine visit by a staff delegation from the Bretton Woods institution.

The IMF delegation visits Zimbabwe next week to assess Harare's commitment to fiscal discipline and the effective turnaround of the economy.

The last IMF mission, which was in the country in September 2005, expressed "deep concern over the continued sharp economic and social decline in Zimbabwe, with prospects of continued triple-digit inflation, further output declines, and increased poverty," and since then both Treasury and monetary authorities have moved to try to arrest the decline.

The IMF staff team, which will visit Zimbabwe between January 25 and February 1, will meet government and central bank officials as well as industry representatives during the routine Article IV consultations, which precede an executive board meeting — to consider Zimbabwe's possible expulsion from the fund — in March.

Economic commentator Eric Bloch does not expect the latest visit by the IMF delegation to be any different from previous consultations, the looming directors' meeting notwithstanding.

"There has never really been any threat of expulsion, just the hype in some international circles to try and frighten us. The motion would require 85 percent of the total votes," Bloch said.

The IMF gave Zimbabwe another six-month reprieve against compulsory withdrawal from the fund last September, citing the country's increased payments to the IMF as well as certain positive policy steps taken to right the economy.

The former Czechoslovakia remains the only country in history to be expelled from the IMF.

Bloch said although he expects further economic decline, "certainly in the first half of the year", the IMF might find positives in recent policies put in place by the government.

"I think they will commend the government's commitment to restrict borrowing to capital projects and not consumption, as was the case previously. They might also take heart in the pledge, by government, to reduce the budget deficit to less than five percent of GDP, remove all price controls. There has also been the freeing up of the foreign exchange market.

"Concerns, however, remain on the level of the national debt, inflation and lack of investment," Bloch said.

Inflation, which has been resurgent since the second quarter of 2005, closed the year at 585.8 percent and remains a massive challenge in 2006.

The last time an IMF team was in Zimbabwe, the central bank maintained its managed foreign currency auction, where the local unit traded at $26 000 against the US$. However, the Reserve Bank of Zimbabwe floated the local unit in October, and it is now trading at about $93 000 per greenback. Worries remain, however, over the 70 percent retention scheme which the central bank has maintained.

The central bank has also discontinued much of the quasi-fiscal activity sharply criticised by the IMF the last time around.

The IMF called for strong fiscal adjustment; full liberalisation of the exchange rate regime; adoption of a strong monetary anchor; elimination of all quasi-fiscal activity by the Reserve Bank of Zimbabwe (RBZ) and the absorption of RBZ losses by the budget.

Zimbabwe has, over the past year, stepped up payments to the IMF and has significantly reduced its arrears with the fund.

Last August, Zimbabwe paid the Fund US$120 million (SDR 82 million) to settle its arrears to the General Resource Account (GRA). Subsequent payments have seen Zimbabwe's total arrears under the GRA coming down to US$25 million and those to the Poverty Reduction Growth Fund (PRGF) Trust are SDR 82 million (about US$121 million).

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