ZIMBABWE: IMF urges policy reforms

[ This report does not necessarily reflect the views of the United Nations]

BULAWAYO, 29 Jun 2005 (IRIN) - The International Monetary Fund (IMF) has predicted a bleak future for the Zimbabwean economy, saying unless there is a major shift in the government's fiscal policy and a change of attitude towards Bretton Woods institutions, the current inflation rate of 144.4 percent would continue to rise.

An IMF delegation visited Harare last week, where it held talks with the government about foreign debt and possible remedies for the country's ailing economy.

As of 20 June 2005, Zimbabwe's arrears to the Fund amounted to US $295 million, according to an IMF statement.

The Fund, which cut its balance-of-payments support to Harare a few years ago, warned that a combination of the government's controversial clean-up drive in urban centres with a sharp decline in agricultural output resulting in critical food shortages, would drive up inflation.

"Output is expected to decline sharply this year. The macroeconomic outlook is further clouded by the gravity of the food security situation and implementation of 'Operation Restore Order', which threatens to worsen shortages, contributes to lower growth, and aggravates inflation pressures," the IMF pointed out.

The delegation also noted that there was need for "decisive action to lower the fiscal deficit, a tightening of monetary policy, and steps to establish a unified, market-determined exchange rate".

Harare should remove price controls to ease shortages of basic commodities and restore private sector confidence and, above all, mend its relations with the IMF so as to fast-track the revival of the economy.

"A rebuilding of relations with the international community is a critical part of the effort to reverse the economic decline. We hope the authorities will work more closely with us to formulate and implement such a policy package, which would help stabilise the economy and improve the welfare of the Zimbabwean people," the IMF commented.

Zimbabwe has battled to service its internal and external debt in the past few years.

Analysts warned that if the six-month waiver on Zimbabwe's suspension expired at the end of August without it having made considerable strides in meeting its obligations, the IMF might be compelled to withdraw the country's membership.

[ENDS]