IMF says Zim’s continued fiscal consolidation key to achieving fiscal sustainability
The International Monetary Fund (IMF) says Zimbabwe’s continued fiscal consolidation is critical for achieving fiscal sustainability, rebuilding international reserves as well as restoring the country’s repayment capacity.
In a statement, the IMF said Zimbabwean authorities have made significant progress in implementing their macroeconomic and structural reform programmes, despite the economic and financial difficulties.
An IMF team led by Domenico Fanizza visited Harare from February 25 to March 9, 2015 to conduct the first review under the 15-month Staff Monitored Program (SMP) approved by the IMF in November 2014.
The IMF said the country has managed to meet most of the targets as it seeks to restore confidence in country’s financial sector.
“The authorities are committed to bringing the primary fiscal deficit on a cash basis close to balance in 2015, while protecting priority social spending, and gradually reducing the stock of domestic arrears,” it said.
The IMF said following significant savings in the wage bill in 2014, authorities have started to take steps to keep employment costs to below budgeted amounts for 2015, while developing a medium-term strategy for public sector reform.
“In addition to the hiring freeze already in place, they are currently elaborating near-term measures to contain employment costs in 2015, including freezing promotions and eliminating redundancies.”
During 2015, Zimbabwe’s policy reform agenda will continue to focus on reducing the primary fiscal deficit to raise Zimbabwe’s capacity to repay external obligations.
The IMF says key risks to the outlook stem largely from a further decline in global commodity prices, fiscal challenges, and possible difficulties in policy implementation.
The IMF has since revised downwards Zimbabwe’s economic growth forecast in 2015 to 2.8 percent from the 3.2 percent it had projected late last year.
The IMF also said a sound operational framework for the Zimbabwe Asset Management Company (ZAMCO) is key to freeing up the banking system from the burden of high non-performing loans that limit the banks’ ability to extend credit to the private sector and keep the cost of credit high.
The IMF said completing the recapitalization of the Reserve Bank of Zimbabwe (RBZ) will also enhance its ability to supervise the banking sector.
“Despite substantial economic and financial difficulties, the authorities have made progress in implementing their reform programme, meeting all quantitative targets and structural benchmarks for the first review under the SMP.
“Moreover, they have stepped up re-engagement with creditors by raising payments to the World Bank and by developing a roadmap to seek debt rescheduling under the umbrella of the Paris Club. These developments constitute important steps toward reengaging with the international financial institutions,” said the IMF.
The IMF says it welcomes the actions to restore confidence in the financial sector, and the progress to clarify the indigenization laws, which were modified in January.
In February, in light of improvements in the regime for anti-money laundering and combating the financing of terrorism (AML/CFT), the Financial Action Task Force (FATF) removed Zimbabwe from the list of countries subject to the FATF monitoring process.
“Economic prospects remain difficult, growth has slowed, and we expect it to weaken further in 2015,” says the IMF.
The IMF said on improving the investment climate, the authorities need to plan to publish on the Zimbabwe Investment Authority website, a simplified summary of the Indigenization and Economic Empowerment Laws.
“In addition, they are reviewing the 1985 Labour Relations Act to adapt it to the competitiveness challenges arising from a fast-changing global environment.”
The IMF said in terms of the balancing of the primary fiscal accounts, the commitment to eliminate the primary fiscal deficit reaffirms Zimbabwe’s intention to further raise its capacity to repay.
“The top priority is to move resources from a very high wage bill to the much-needed capital and social spending. To this purpose the authorities intend to work toward reducing the share of revenues absorbed by the wage bill.
In addition, by amending the Public Finance Management and the Procurement Acts, they will seek to increase accountability, transparency and efficiency in the use of public resources”, the IMF said.
The IMF said the reform of the tax regime for the mining sector could go a long way in mobilizing additional resources, and continuing to publish audited financial accounts of the mining companies will enhance transparency.