An International Monetary Fund (IMF) mission led by Mr. Domenico Fanizza visited Harare from September 17 to October 1, 2014 to conduct the third and last review under the Staff Monitored Program (SMP) approved by management in June 2013 and to hold discussions on a 15-month successor SMP. The authorities met all end-June 2014 quantitative targets and structural benchmarks under the program and the mission reached a staff level agreement on policies for a successor SMP. The mission met with Mr. Chinamasa, Minister of Finance and Economic Development, Dr. Sibanda, Chief Secretary to the President’s and Cabinet, Dr. Mangudya, Governor of the Reserve Bank of Zimbabwe (RBZ), other senior government officials, and representatives of the private sector, civil society and development partners. The team wishes to thank the authorities for their warm hospitality and the constructive discussions.

At the conclusion of the visit, Mr. Fanizza issued the following statement:

“The Zimbabwe government has redoubled its efforts to rebalance policies toward a stable macroeconomic environment conducive to private sector-led growth. Nonetheless, economic conditions remain difficult. Growth has slowed down because of inadequate financial flows, despite a very favorable agricultural season. This and the appreciation of the South African Rand, the major currency of Zimbabwe’s trading partner, has caused a liquidity crunch that has weakened economic activity. The external position remains precarious with low levels of international reserves, a large current account deficit, and external arrears. The authorities took decisive fiscal measures on the revenue and expenditure sides to keep fiscal policy on track and to protect social expenditures, despite the large civil service wage increase earlier in 2014. The authorities intend to re-engage with the international community. The mission welcomes Zimbabwe’s decision to start working with the international financial institutions to prepare a plan for clearing the outstanding arrears, as a step toward resolving the country’s debt challenge.

“The reform efforts have started to lay the ground for stronger, more inclusive, and lasting economic growth and addressing the economic challenges remains a priority for the government. It is encouraging that the authorities have come to the conclusion that Zimbabwe cannot address these challenges without the support of the international financial community. The authorities’ policy reform agenda, which they will monitor with the help of IMF staff under a proposed new 15-month SMP to end December 2015, consist of the following major areas:

• Balancing the primary fiscal budget. This will send a strong signal that Zimbabwe’s government intends to live within its means. Moreover, fiscal policy will focus on raising the efficiency and quality of public spending and rebalancing the expenditure mix toward infrastructure and social outlays. Scarce public resources need to be used appropriately, underscoring the importance of containing pressures on the wage bill, stepping up reforms in the taxation of the mining sector, amending the Public Finance Management and Procurement Acts and approving the Public Debt Management Bill.
• Restoring confidence and stability in Zimbabwe’s financial sector. The approval of the draft operational framework for the acquisition of nonperforming loans by the Zimbabwe Asset Management Company and other private asset management companies by the RBZ Executive Committee/Board, submission to Parliament of amendments to the Reserve Bank of Zimbabwe Act, and amendments to the Banking Act, will be instrumental in restoring confidence and bringing stability to the sector.
• Addressing the country’s debt challenge by stepping up re-engagement with all creditors with the objective to normalize relations. To this purpose gathering support to define a strategy for clearing arrears with multilateral institutions will be essential.
• Clarifying the Indigenisation and Economic Empowerment Laws. This will encourage mutually beneficial partnerships between domestic and foreign investors. This step will go a long way toward allaying negative perceptions on the security of investments and property rights, provide legal transparency and predictability, and reassure markets of the government’s open invitation to invest in Zimbabwe."

Upon return to Washington, the mission will submit its report and propose Management approval by November 2014.