IMF calls for talks on economic crisis

The International Monetary Fund (IMF) has urged that tripartite talks on Zimbabwe's economic challenges be restarted by government, unions and business "in a concerted and comprehensive way". An IMF staff team visited Harare from 17 to 31 March and held discussions with the authorities on the economic situation and the government's macroeconomic policies. They also met with unions, civil society, NGOs, political parties and the diplomatic community. "Zimbabwe's economy has experienced a sharp deterioration in the last five years. Real GDP has declined by about 30 percent, and is still contracting. Inflation doubled in each of the last three years to reach 600 percent at the end of 2003. This has had dire social consequences: unemployment is high and rising, poverty has doubled since 1995, school enrolment declined to 65 percent in 2003, and the HIV/AIDS pandemic remains largely unchecked," the IMF said. While this was in part the result of "exogenous shocks", such as erratic weather, "structural changes in agriculture, related to the way in which the land reform [process] was implemented, negatively affected agricultural production". "In recognition of Zimbabwe's grave food shortages, foreign donors have provided large amounts of humanitarian aid, but other donor assistance has been curtailed because of concerns over governance issues," the Fund noted. The government's economic policies had not adequately addressed the difficulties the country was experiencing. "In particular, loose monetary policy intensified inflationary pressures and has left interest rates highly negative in real terms, imposing a heavy tax on savers, encouraging excessive borrowing and increasing financial sector vulnerability. Excessive liquidity growth led to a flight to alternative assets that contributed to record increases in real estate and stock prices, hoarding of goods, and the depreciation of the parallel exchange rate. Exports suffered because of the uncompetitive official exchange rate, and official imports were severely constrained," the Fund explained. However, the budgetary operations of the government were almost balanced in 2003, reflecting strong performance in the last quarter of the year. "This was due to higher sales tax collections after the mid-year liberalisation of most prices, including fuel, and the further compression of expenditure in real terms, including wages." Zimbabwe's arrears to the IMF preclude access to IMF lending, but "further strong policy efforts would be an important signal of Zimbabwe's determination to address its serious economic difficulties. Such efforts would also begin to lay the basis for regularising Zimbabwe's arrears to the IMF (US $290 million at end-February 2004) and other creditors". The IMF welcomed the recent payment of US $6 million, and the renewed commitment by Zimbabwe to make further small quarterly payments of US $1.5 million to service its IMF debt.