IMF tells Zim to cut spending

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Written by Sports Reporter

Friday, 09 July 2010 13:23

HARARE – The International Monetary Fund has advised cash-strapped Zimbabwe to curtail its 2010 expenditure by three percent of gross domestic product to return to a path toward medium-term fiscal stability.
Zimbabwe’s Finance Minister Tendai Biti last December budgeted to spend US$2.25 billion in 2010 as he sought to strike a delicate balance between the requirements of an expectant business sector and a restive public keen to see a quick improvement in living standards.
But the IMF said last week that Zimbabwe’s approved 2010 budgetary expenditures would need to be slashed to reduce the economy’s vulnerability to shocks.
This would also help maintain a fiscal reserve of at least US$250 million of special drawing rights holdings or two months of
expenditures. “Although reaching consensus on the recommended fiscal measures is a major political challenge, delaying their implementation could increase the social and economic costs of the future necessary adjustment,” the Fund said in a staff report following last month’s Article IV Consultations with the Zimbabwean government.
The Bretton Woods institution noted that the key fiscal challenge for Zimbabwe was to reduce the government wage bill relative to revenues in 2010 and beyond to leave sufficient fiscal space for urgent infrastructure upkeep expenses such as electricity payments and improvement of water and sanitation.
The Harare government embarked on a civil service payroll audit in November 2009 amid allegations that at least 10,000 ghost workers are fleecing the cash-strapped regime of much-needed revenue. Results of the audit are yet to be published despite indications that the process was completed in February.
The IMF also said Zimbabwe was in debt distress and warned that the debt overhang could not be resolved without debt relief “even if policies are improved and mineral extraction is increased”. “The government needs to reach consensus on a resolution strategy for
external debt arrears and to improve relations with the international community, whose support would be vital for obtaining debt relief and rebuilding the Zimbabwe economy,” the report said.
Zimbabwe has accumulated an external debt of more than US$5 billion.

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