Zimbabwe risks deflation, IMF warns

The International Monetary Fund says Zimbabwe’s economy is at crossroads and risks sliding into deflation due to weakening macro-economic fundamentals and urged the country to successfully complete the second staff monitored programme (SMP) to unlock external funds.

In a statement released last night, the IMF said the economic situation in the southern African country remains difficult and maintained a three percent GDP growth projection for the year.

“The post-hyperinflation rebound has ended. Gross Domestic Product (GDP) growth decelerated from 10.5 percent in 2012 to 4.5 percent in 2013, due to adverse weather conditions, weak demand for key exports, and election-year uncertainty,” said the IMF.

Zimbabwe’s annual inflation stood at 0.09 percent in September after sliding into negative territory in February this year.

The Bretton Woods institution said that strong macroeconomic policies and debt relief, in the context of a comprehensive arrears clearance strategy supported by development partners, would be essential to address Zimbabwe’s developmental needs.

Zimbabwe’s external debt currently stands at $10 billion.

“The external position is precarious, with low international reserves, a large current account deficit, an overvalued real exchange rate, and growing external arrears. Credit and deposit growth have slowed down sharply, liquidity conditions are tight, and the banking system remains weak,” said the IMF.

It noted that there was added fiscal pressure when government awarded higher-than-budgeted wage increases to its 235 000 strong workforce while revenue collection lowered in tandem with the economy.

Last month, the IMF concluded its third review of Zimbabwe’s SMP and has approved a successor to the programme that will run from for 15 months from November this year.

“A successful implementation of the Staff-Monitored Programme (SMP) would be an important stepping stone toward Zimbabwe’s normalizing relations with the international community,” it said.

“The main objective of the new programme is to strengthen the country’s external position as a prerequisite for arrears clearance, resumption of debt service, and restored access to external financing.”-The Source

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