In the statement following the conclusion of Article IV consultations, the IMF executive board applauded the positive economic changes that have occurred in Zimbabwe since the formation of a coalition government in 2009, including a nine-percent increase in real gross domestic product last year.

The economy expanded by nine percent in 2010, with Finance Minister Tendai Biti last week forecasting a robust 9.3 percent growth rate this year.

The board, however, said several factors mitigated against similar growth this year, noting that the current policy environment and the controversial government indigenisation programme were the main drags on economic expansion this year.

“An inefficient composition of expenditure, rising vulnerabilities in the financial system, and the recent announcement of the fast-track indigenisation of the mining sector would be a drag on the recovery and cause growth to decelerate to 5.5 percent,” the Fund said.

Addressing these policy challenges in a timely manner could result in better growth outcomes for 2011, it noted.

Other key downside risks “include possible political instability and a fall in commodity prices”.

The southern African country is currently sitting on a political knife-edge amid heightened tensions among the two main parties led by President Robert Mugabe and Prime Minister Morgan Tsvangirai.

The precarious political climate has been worsened by the partisan security forces that have vowed never to allow Tsvangirai to rule Zimbabwe, even if he defeats Mugabe in polls set for next year or 2013.

Zimbabwe has gazetted new regulations forcing foreign-owned mines to cede more than 51 percent of their shareholdings to black Zimbabweans by mid-September.

Despite historically-high commodity prices projected by the World Economic Outlook and impressive progress by the Zimbabwean government in revenue mobilisation, the IMF warned that a relatively huge fiscal financing gap would emerge in 2011.

Significant wage bill overruns relative to the budget and a large stock of outstanding domestic payments arrears accumulated by end-2010 are other main sources of fiscal pressures.

According to the IMF, the fiscal gap could be eliminated through the removal of ghost workers from the payroll, reinforced controls on employment levels, and a reduction in low-priority transfers to state-owned enterprises.

The IMF called for structural reforms that should include the alignment of indigenisation and mpowerment objectives with respect for private property rights and the need to attract domestic and foreign investment and improved governance, particularly in the diamond sector.

Mugabe has threatened to nationalise companies owned by Western nationals in retaliation to travel restrictions and an asset freeze imposed by their countries on senior officials of his party.

Reforms

• respect property rights

• attract investment

• improve governance

• remove ghost workers