IMF welcomes new initiatives to rescue economy

The International Monetary Fund (IMF) has publicly welcomed recent efforts to rescue Zimbabwe's failing economy. This follows a visit to the capital, Harare, by an IMF staff team from 25 February to 13 March. The team held discussions with the Zimbabwean authorities on the economic situation and the government's macro-economic policies. They also met with representatives of civil society, the business and financial communities, political parties, trade unions and the diplomatic community, the IMF said in a statement. The fund noted that Zimbabwe's economy had experienced a progressive and sharp deterioration over the past four years. "Real GDP [gross domestic product] has declined by about 30 percent, and is still contracting. Inflation has doubled in each of the last two years to reach 200 percent at the end of 2002 and could well rise further. There are widespread shortages, poverty and unemployment have risen, and the HIV/AIDS pandemic is worsening," the IMF said. Worsening the economic situation in the past two years were bad weather and "structural changes in agriculture" in the form of the government's fast-track land reform programme, the implementation of which had "affected agricultural production". Zimbabwe's consequent food shortages threaten about half the population with starvation. "In recognition of Zimbabwe's grave food security situation, foreign donors have provided large amounts of humanitarian aid, but other donor assistance has been curtailed because of concerns over governance issues," the IMF noted. However, Zimbabwe's economic difficulties also reflected weaknesses in the government's economic policies of the recent past. The IMF also hit out at "pervasive price controls and other policies, such as the GMB [Grain Marketing Board] monopoly" which it said had contributed to shortages, damaged business confidence and drove up prices. "The intensification of exchange and price controls in November [2002] resulted in further damage to production and new shortages," the IMF added. While criticising the past measures, the IMF said it welcomed more recent "home-grown efforts" to address Zimbabwe's problems in a consultative fashion. The IMF team's wide-ranging policy discussions reviewed progress made under the new National Economic Revival Programme (NERP), with a particular focus on fiscal, monetary and exchange rate policies. The NERP was launched in February 2003 by Minister of Finance and Economic Development Herbert Murerwa and was the result of consultations with business and labour. The minister said at the time that the NERP was the fulfilment of government's promise to "introduce, in conjunction with stakeholders, measures to address the viability of producers and the survival of exporters, including all earners of foreign exchange". Adding that "most of the exporters had become uncompetitive and un-viable at the fixed exchange rate". The IMF said that among the issues discussed were the initial steps taken under the NERP, such as setting the exchange rate for most transactions at Zim $824 per US $1, which the IMF described as "a courageous step forward" which would require careful follow-up. "Price control mechanisms are being reviewed, with the aim of providing more flexibility to address the availability of goods and the viability of producing them," the Fund added. It noted also that "there has been a modest tightening of monetary policy in recent weeks, and if that is pursued with increasing vigour, inflation will eventually be brought under control". "Further determined policy adjustment efforts would be an important signal of Zimbabwe's determination to address its serious economic difficulties," the IMF added. Murerwa had indicated that the NERP would be "implemented with resolve and commitment", promising that its effective implementation "would turn around the fortunes of the economy and improve the standards of living of our people".