ZIMBABWE’S economic outlook is threatened by “significant weaknesses” in governance and the pervasive issue of corruption, which poses substantial risks to the country’s macroeconomic stability and performance, the International Monetary Fund (IMF) has said.
The IMF staff team led by Wojciech Maliszewski conducted a second mission to Harare during June 18 to 27, to conclude the 2024 Article IV Consultation.
At the end of the mission, Maliszewski issued a statement highlighting challenges undermining the country’s economic performance.
“The mission discussed structural reforms aimed at improving the business climate, strengthening economic governance, and reducing corruption vulnerabilities,” Maliszewski said.
“Zimbabwe’s economic governance has significant weaknesses and corruption poses risks to macroeconomic performance. Addressing these weaknesses remain key for promoting sustained and inclusive growth.”
Zimbabwe has experienced widespread corruption in virtually all sectors of the economy. Currently, the Zimbabwe Electoral Commission (Zec) is embroiled in a corruption scandal involving Wicknell Chivayo, Mike Chimombe and Moses Mpofu.
The trio is involved in an ugly fight for spoils after they allegedly bagged a murky US$40 million tender from Zec to supply election materials ahead of last year’s controversial polls.
Despite headwinds, the IMF said Zimbabwe’s economy continues showing resilience. Growth is expected to decelerate to about 2% in 2024, from 5,3% in 2023, as the country faces a devastating El Niño-induced drought.
Higher import bills are also worsening the balance-of-payments outlook. But growth is expected to recover strongly in 2025 to about 6% supported by a rebound in agriculture and ongoing capital projects in manufacturing.
The mission said price stability would be best achieved by stabilising the Zimbabwe Gold (ZiG) nominal exchange rate against a suitable basket of currencies.
This could be, in turn, accomplished by controlling base money growth.
“The exchange rate should be determined in a deeper market to provide relevant information in the decision regarding the monetary policy stance, which would require identifying and removing any remaining impediments to the functioning of the FX (foreign currency exchange) market to promote price discovery,” the statement said.
“Closing the fiscal financing gap is essential to sustainably stabilise the currency.
“The transfer of past debt obligations related to the RBZ’s (Reserve Bank of Zimbabwe) quasi-fiscal operations (QFOs) to the Treasury represented an important step to strengthen financial discipline.”
The mission also welcomed enhanced coordination between the RBZ and the Finance ministry on macro-policies and liquidity management.
However, the mission assessed that the cost of servicing the QFO-related debt and treasury bills, combined with weaker-than-expected revenues and drought-related spending, opened a sizeable financing gap in the 2024 budget.
“The financing gap would need to be closed in a way that does not undermine the monetary policy stance,” it noted.
“The mission is encouraged that the work to identify such measures is ongoing and stands ready to provide support to the authorities as needed.”
The IMF said strengthened governance framework for the newly constituted Mutapa Investment Fund will be key for the stabilisation effort.