International Monetary Fund financing to Zimbabwe remained subject to the clearing of arrears and further reforms in the fragile economy, the Fund said.
Zimbabwe’s economy has stabilised following a 10-year slump after a unity government formed by rivals President Robert Mugabe and Prime Minister Morgan Tsvangirai last year adopted the use of multiple foreign currencies to replace a worthless local dollar.
But Western donors have held back aid crucial to rebuilding the economy, demanding more substantial reforms.
“The economic recovery remains fragile and domestic and external imbalances are building up. Therefore, significant policy challenges need to be addressed without delay,” the IMF said in a statement after a staff visit to Zimbabwe.
Zimbabwe owes the IMF $140 million in arrears, and its total external debt is about $6 billion.
The IMF said economic policies in Zimbabwe had improved significantly following a decade of economic decline and hyperinflation in 2007-2008.
But the government’s wage bill needed to be reduced and budgetary expenditures to be better prioritised.
“The government needs to ensure that sufficient budgetary allocations are made to critically important infrastructure rehabilitation projects and social programs supporting vulnerable groups while maintaining a fiscal stance consistent with macroeconomic stability,” the IMF statement said.
It said banking sector risks were rising and this should be mitigated by prudential measures.
Central bank governance also needed to be improved, including the appointment of a Reserve Bank of Zimbabwe governing board and a reduced central bank operating budget which should focus on core activities.
The IMF last month restored Zimbabwe’s voting rights, which were suspended in 2003 over the country’s debt and policy differences with Mugabe’s previous ZANU-PF government.
But earlier this week the IMF said there would be no financial aid until the southern African state cleared its arrears.
“Access to IMF lending resources would be subject to relevant IMF policies, including a track record of sound economic policies and a comprehensive strategy for the clearance of arrears to official creditors agreed among the government coalition partners and with official creditors,” it said.
Finance Minister Tendai Biti told reporters last month the unity government was divided over his proposal to have Zimbabwe declared a heavily indebted poor country, a status which would qualify it for debt forgiveness.
The IMF said Zimbabwe, which registered 500 billion % inflation at the peak of its economic crisis in December 2008, still largely relied on donor aid.
“Zimbabwe remains heavily dependent on humanitarian assistance to meet basic needs of its population,” it said.
“Continuing efforts to strengthen relations with the international community and attracting increased donor assistance, in particular in the areas of health, education, and critical infrastructure, would help improve the living conditions of ordinary Zimbabweans.”