Harare, Zimbabwe (News of the South)–Zimbabwe faces a severe chance of economic implosion if the government does not rein its excessive spending through high employment costs and government transfers to support specific economic sectors, according to the International Monetary Fund (IMF).
An International Monetary Fund (IMF) team led by Ana Lucía Coronel visited Zimbabwe from May 2 to 13, 2017, to hold discussions with the national authorities, private sector representatives, and civil society in the context of the 2017 Article IV Consultations.
The discussions covered recent economic developments, the outlook and risks, as well as policies that could restore economic stability.
In a report delivered at the end of its month long assessment of the country, the IMF states that Zimbabwe has experienced a resurgence in mining and agriculture which could drive growth this year but that could be undone by continued excessive spending.
“Excessive government spending, if continued, could exacerbate the cash scarcity, further jeopardize the health of the external and financial sectors, and, ultimately, fuel inflation”
“Spending pressures stem from high employment costs, government transfers to support specific economic sectors, and elevated discretionary expenditure”
“Action on these three fronts, while safeguarding social outlays, is therefore crucial. Reducing the wage bill could involve reviewing allowances and benefits and evaluating the size of the civil service with a view to eliminating non-essential posts”, it said.
The international financier has also questioned government’s continued financial interventions to support agriculture which while understandable, could be redesigned with the aim of maximizing the benefits on production while minimizing the risks to the public-sector balance sheet.
With Zimbabwe facing an acute foreign currency shortage the IMF has called for a restoration of confidence as a precursor to more inflows
“Restoration of confidence is essential for attracting the necessary dollar inflows to the economy. Refraining from central bank financing of the deficit and containing the issuance of debt and quasi-currency instruments is vital”
“Furthermore, the financial sector should restore its role of intermediating resources in the economy by channeling deposits to productive credit rather than financing fiscal operations”, it said.
The Executive Board of the IMF is expected to consider the staff report for Zimbabwe’s 2017 Article IV Consultations in early July.
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