IMF warns Zimbabwe that excessive government spending could worsen cash crisis

The International Monetary Fund has warned Zimbabwe that excessive government spending could worsen the current cash crisis and ultimately fuel inflation.

In a statement at the end of a 12-day visit to the country, team leader Ana Lucia Coronel said Zimbabwe’s economy was facing difficulties which included a cash crisis that forced the country to adopt bond notes last year.

She said the recovery in agriculture and mining was going to drive growth but maintaining the moment would require action to expedite plans to reduce the deficit to a sustainable level.

“Excessive government spending, if continued, could exacerbate the cash scarcity, further jeopardize the health of the external and financial sectors, and, ultimately, fuel inflation,” she said.

“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.”

The government wage bill gobbles more than 90 percent of government revenue. Efforts by Finance Minister Patrick Chinamasa to reduce the wage bill have faced stiff resistance from his colleagues including President Robert Mugabe.

On the much lauded Command Agriculture programme which has sparked calls for more command projects, the IMF said: “Government interventions to support agriculture, while understandable, could be redesigned with the aim of maximizing the benefits on production while minimizing the risks to the public-sector balance sheet.”

It also said restoration of confidence was essential to attract the necessary dollar inflows to the economy.

Coronel said the central bank should refrain from financing the deficit and containing the issuance of debt and quasi-currency instruments.

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