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Usual suspects fingered in IMF probe
The Financial Gazette (Zimbabwe)
December 20, 2006

http://www.fingaz.co.zw/story.aspx?stid=2132

ZIMBABWE needs to back its ending of the central bank’s quasi-fiscal activities with deeper cuts in state spending, an International Monetary Fund (IMF) team that visited the country recently has said.

The mission said in a statement on Monday that it had "noted the deteriorating economic conditions since its last visit in January/February this year."

"Progress on structural reforms has been limited and uncertainty over property rights continues to depress investor confidence," the IMF mission said, repeating previous calls for broader economic reforms in Zimbabwe.

Apart from its backing for Finance Minister Herbert Murerwa’s announcement of an end to the central bank’s extra fiscal activities, the new IMF statement repeats previous comments and recommendations on the Zimbabwean economy, a sign that it found no evidence of real reforms on its latest visit.

"As emphasised in previous rounds of discussions last year and January/February this year, Zimbabwe’s economic crisis calls for the urgent implementation of a comprehensive policy package comprising several mutually reinforcing actions. Without a fundamental change in policies, prospects are for a continued deterioration in the economic situation," the IMF said.

The group says key to such reforms would be strong fiscal adjustment.

"The inclusion in the 2007 budget of substantial quasi-fiscal activity reported by the RBZ, such as the provision of subsidised foreign exchange to the public sector and price supports to commodity exporters, marks a positive step towards increasing transparency," said the IMF.

"Going forward, the key will be first to ensure that sharp cuts are made in real terms in fiscal spending, including quasi-fiscal activity previously undertaken by the RBZ. This will mean that the government should aim to stay within the current 2007 budget envelope."

Second, the IMF said, fiscal expenditure would need to be prioritised to ensure adequate food imports, an urgent improvement in health infrastructure, and well targeted social safety nets to protect the poor and address the needs of those affected by HIV/AIDS and Operation Murambatsvina.

The IMF renews previous demands that have already been resisted by government, particularly the floating of the exchange rate and the end of all controls on pricing.

"Strong fiscal adjustment will need to be supported by complementary policies, in particular: unifying all official exchange rates and moving the unified rate towards market-determined levels; remo-ving restrictions on current account payments and transfers; liberalising price controls and imposing hard budget constraints on public enterprises, whose losses have been largely responsible for quasi-fiscal activities; and establishing a strong monetary anchor, with the RBZ focusing on its core function of ensuring overall price stability."

The Fund said economic growth and low inflation would require "comprehensive structural reforms" and a strengthening of governance over the medium term. Such reforms, said the report, would include public enterprise and civil service reform, tax and expenditure management reform, agriculture sector reforms, and the strengthening of private property rights.

The IMF also repeated earlier pleas for Zimbabwe to mend strained ties with the world. "Finally, we encourage the authorities to improve relations with the international community in order to support the government’s reform policies and facilitate progress towards the Millennium Development Goals. We hope the authorities will work more closely with the IMF to design and implement a policy package that would help achieve macroeconomic stability and growth and improve the welfare of the Zimbabwean people."

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