IMF warns Zimbabwe on arrears

International Monetary Fund (IMF) financing to Zimbabwe remained subject to the clearing of arrears and further reforms in the fragile economy, the fund said.

Zimbabwe’s economy has stabilised following a 10-year slump after the unity government formed by rivals President Robert Mugabe and Prime Minister Morgan Tsvangirai last year adopted the use of multiple foreign currencies to replace a worthless local dollar.

But western donors have held back aid crucial to rebuilding the economy, demanding more substantial reforms.

“The economic recovery remains fragile and domestic and external imbalances are building up. Therefore, significant policy challenges need to be addressed without delay,” the IMF said in a statement after a staff visit to Zimbabwe.

The country owes the IMF 140m in arrears, and its total external debt is about 6 bn.

The IMF said economic policies in Zimbabwe had improved significantly after a decade of economic decline and hyperinflation in 2007-08.

But the government’s wage bill needed to be reduced and budgetary expenditures to be better prioritised.

“The government needs to ensure sufficient budgetary allocations are made to critically important infrastructure rehabilitation projects and social programmes supporting vulnerable groups while maintaining a fiscal stance consistent with macroeconomic stability,” the IMF said.

It said banking sector risks were rising and this should be mitigated by prudential measures.

Central bank governance also needed to be improved, including the appointment of a Reserve Bank of Zimbabwe governing board and a reduced central bank operating budget that focuses on core activities.

The IMF last month restored Zimbabwe’s voting rights, which were suspended in 2003 over its debt and policy differences with Mugabe’s previous Zanu (PF) government.

But yesterday the IMF said there would be no financial aid until Zimbabwe’s arrears had been cleared.

“Access to IMF lending resources would be subject to relevant IMF policies, including a track record of sound economic policies and a comprehensive strategy for the clearance of arrears to official creditors agreed among the government coalition partners and with official creditors,” it said.

Finance Minister Tendai Biti has said the government was divided over his proposal to apply for heavily indebted poor country status, qualifying it for debt forgiveness.

The IMF said Zimbabwe still largely relied on donor aid.

“Continuing efforts to strengthen relations with the international community and attracting increased donor assistance … would help improve living conditions .

Source:www.businessday.co.za

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