April 11, 2019 / 8:15 AM / 2 months ago

Zimbabwe reaches agreement with IMF on economic reform program

HARARE (Reuters) - Zimbabwe has reached agreement with the International Monetary Fund (IMF) on a program of economic policies and structural reforms that could pave the way to the crisis-hit country re-engaging with international financial institutions.

Workers harvest tobacco at a farm outside Harare, Zimbabwe, February 20, 2019. REUTERS/Mike Hutchings

Suffering from decades of decline and hyperinflation, Zimbabwe has not been able to borrow from international lenders since 1999, when it started defaulting on its debt. It has arrears of around $2.2 billion with the World Bank, the African Development Bank and European Investment Bank.

On Thursday, the treasury said the economy grew by 4 percent last year, below an initial forecast of 4.5 percent, as it struggles with a shortage of dollars and surging inflation.

“Zimbabwe is facing deep macroeconomic imbalances, with large fiscal deficits and significant distortions in foreign exchange and other markets, which severely hamper the functioning of the economy,” Gene Leon, leader of the IMF staff team, said in a statement.

Zimbabwe is also facing the challenge of responding to drought and the devastation from Cyclone Idai, Leon said.

Under the agreement with the IMF, policies will focus on eliminating the government’s double-digit fiscal deficit and adoption of reforms to allow market forces to drive the functioning of foreign exchange and other financial markets.

The new RTGS dollar currency introduced in February has continued to lose value, trading at 3.14 to the dollar on the interbank market and 4.6 on the black market.

Leon said the agreed policies can be expected to remove distortions that have held back private sector growth, but gave no specific targets for cutting the deficit or other objectives.

He also did not say if and when any fresh IMF financial support would be forthcoming. Zimbabwe owes foreign lenders a total of $8.2 billion, most of it in arrears.

Zimbabwe on Tuesday appealed for $613 million in aid to tackle a humanitarian crisis following Cyclone Idai.

Leon had met with Finance Minister Mthuli Ncube, Reserve Bank of Zimbabwe (RBZ) Governor John Mangudya and other officials in a continuation of talks which aim to implement a set of policies enabling a return to economic stability.

“Successful implementation ... will assist in building a track record and facilitate Zimbabwe’s re-engagement with the international community,” said Leon.

The IMF said in its world economic outlook this week that Zimbabwe’s economy will contract 5.2 percent this year, the first time the economy faces recession since 2008.

Reporting by Nqobile Dludla; Additional reporting by MacDonald Dzirutwe; Editing by David Holmes

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