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IMF presses for major policy change
Dumisani Ndlela, The Zimbabwe Independent
February 03, 2006

http://www.theindependent.co.zw/news/2006/February/Friday3/4143.html

A VISITING International Monetary Fund (IMF) team left the country yesterday after pressing government to undertake major policy reforms to turn around the economy.

The IMF delegation demanded commitment from government to an immediate halt to farm invasions, which it said were hampering Zimbabwe's efforts to normalise relations with the international community, a source indicated.

The IMF team expressed grave concern over fiscal ineptitude, the deteriorating humanitarian crisis as well as resurgent inflationary pressures in the economy.

Sources said yesterday the IMF urged government to urgently privatise public enterprises, which it said were bleeding the fiscus. Rising money supply growth as a result of increased money printing last year had impacted negatively on the fight against inflation, leading to a deterioration of the macroeconomic situation, the team said.

Finance minister Herbert Murerwa said yesterday government had undertaken to "step up policy reforms, as well as ensuring that Zimbabwe is fully paid up on the IMF's General Resources Account arrears".

The IMF team is expected to release a statement next week after approval from the IMF management in Washington.

"There were serious concerns over government's operation driving out urbanites from slums (Operation Murambatsvina), the looming food shortages and continued land invasions. The IMF team felt the humanitarian crisis would have a significant impact on the fiscus," a source said.

The IMF has recommended fundamental structural reforms over the medium term which it said were essential to ensure a stable and efficient financial system.

It also recommended an increase in the role of markets in the pricing of commodities, public enterprises reforms, putting fiscal accounts on a strong medium-term footing, an improvement in agricultural productivity and a reduction of arrears.

The team noted that past recommendations had not been met, save for government's battle to clear outstanding arrears against the backdrop of a worsening foreign currency crunch.

It said government had not taken any steps to reform the civil service. In September, Zimbabwe paid a surprise US$120 million - more than a third of its outstanding debt - to the IMF, a payment that earned it a six-month reprieve. An additional US$15 million was paid a month later, followed by another US$15 million payment in January.

Sources indicated yesterday that it was unlikely the team would recommend Zimbabwe's expulsion from the IMF, but hinted that policy reforms, which will be crucial to the board's determination of the country's continued membership, were lagging behind.

"It's unlikely Zimbabwe will be kicked out of the IMF, but there are serious worries that there have been no signs of stability in the economy," a source told the Zimbabwe Independent yesterday.

Murerwa said government would step up policy reforms, a position indicating solemn fears by the Harare administration that the issue might constrain its chances to survive censor by the board, expected to review Zimbabwe's situation in March. Zimbabwe escaped membership expulsion after being given a six-month reprieve by the IMF board at its last meeting in September.

Murerwa said concern had been raised by the IMF mission on the issue of exchange controls, particularly the recent directive by the Reserve Bank that the exchange rate movement should be volume-based.

"With regards to Zimbabwe's payments to the IMF, the IMF mission welcomes the country's modest efforts, but underscored the need for policy consolidation so as to minimise the inadvertent squeeze on the economy arising from arrear payments," Murerwa noted.

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