Zimbabwe Economy Facing Difficulties: IMF

Low commodity prices coupled with tight liquidity conditions and successive droughts effectively slowed down Zimbabwe’s economic growth from 1.1 percent in 2015 to 0.7 percent in 2016, International Monetary Fund representative has said.

Writing in the IMF Country Report Number 17/196, Country Executive Director, Maxwell Mkwezalamba said severe drought and slow reform momentum have resulted in high expenditure levels since 2015, hence affecting Zimbabwe’s economic performance.

He added that limited access to foreign inflows has worsened fiscal imbalances, an unsustainable situation that has forced government to finance the difference by increasing domestic borrowing.

IMF noted that extra-budgetary expenditures related to grain imports necessitated by drought conditions as well as elevated employment costs, shored up government expenditures in 2015 and 2016.

However, Mkwezalamba noted that partial recovery in commodity prices is expected to enhance viability of mining operations, and culminate in improved output.

He also said inflation turned positive in 2017 following a prolonged episode of negative inflation.

“Renewed inflationary pressures emerged, stemming from premiums in the informal foreign exchange market, consequently, year on year inflation rose from -0.7% in January to 0.75% in May 2017.

“Restraint by the Reserve Bank of Zimbabwe in issuing bond notes and accompanying liquidity constraints have moderated the exchange rate pass-through effects and stabilized inflation within single digit levels,” said Mkwezalamba.

According to IMF, the firming of commodity prices, as well as increased artisanal gold mining, and chrome and tobacco production spurred export recovery in 2016.

Underpinned by a favorable agricultural season, Zimbabwean authorities are however optimistic that real GDP growth will rebound to 3.7 percent in 2017.

Buoyed by improved effectiveness and efficiency in VAT system of recording taxable transactions , tax returns have exceeded target levels in the first quarter of 2017 which could signal hope for better economic performance going forward.

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