By Alois Vinga
THE International Monetary Fund (IMF) has projected Zimbabwe’s economic growth to reach 3,5% this year.
The Bretton woods institution however immediately urged government to implement policies which helps tighten the monetary system to contain inflation.
In a statement following the conclusion of Article IV consultations with Zimbabwe this week, IMF’s executive board said Real Gross Domestic Product (GDP) rose by 6,3% in 2021 on the back of a bumper maize harvest, strong pickup in mining, and buoyant construction.
The institution acknowledged the tighter policy stance implemented since mid-2020 relative to 2019 saying it has contributed to lowering inflation to 60,7% year on year at the end 2021.
“The output recovery that resumed in 2021 is expected to continue, albeit at a slower pace, with growth projected at about 3,5% in 2022 and 3% over the medium term in line with Zimbabwe’s growth potential,” the IMF said.
It was acknowledged that the fiscal policy was tightened in 2020-21, reflecting increased revenues and lowered spending which resulted in the current account balance turning into a surplus during the 2019-21 period.
However, the institution raised concerns on the fact that inflation figures remain high amid rising poverty which has seen a third of the population risking food insecurity partly due to protracted droughts.
The international finance institution said international reengagement has lagged as stakeholders seek political and economic reforms with the 2019 Staff-Monitored Program having experienced significant policy slippages and elapsed without a review.
“Since then, the authorities have made significant progress towards restoring macroeconomic stability, though the implementation of past IMF policy advice has been mixed.
“The authorities have developed a debt resolution strategy and started token payments to creditors in a bid to make progress on reengagement,” the IMF said.
Directors agreed that fiscal policy should aim to restore macroeconomic stability and create fiscal space for priority spending and emphasized the need to enhance revenue mobilisation, including through broadening the tax base and improving tax administration and compliance.
“On the spending side, accelerating reforms of state-owned enterprises and enhancing fiscal controls will be critical to limit fiscal risks. Directors also encouraged the authorities to use the SDR allocation prudently and transparently,” IMF said.
The Bretton Woods institution recommended the need to increase the operational independence of the central bank, discontinuation of its quasi-fiscal operations, and improvement of its coordination with the fiscal authorities.
They said concerted efforts are needed toward greater exchange rate flexibility by allowing a more transparent and market-driven price process.
“Directors encouraged the authorities to advance reforms, noting that a new Staff Monitored Program could help establish a track record of sound policies and provide further impetus to their re-engagement efforts,” IMF added.