IMF warns Zimbabwe on excessive government spending

IMF warns Zimbabwe on excessive government spending

HARARE, May 16  (The Source) – The International Monetary Fund (IMF) says Zimbabwe must cut back on excessive spending, and warned that further non-priority expenditure would amplify cash shortages and fuel inflation.

Zimbabwe is facing a worsening cash crunch while its public sector wage bill consumes 97 percent of government expenditure at a time revenue inflows have remained subdued. Last year the country’s budget deficit amounted to $1,1 billion as government expenditure — at $4,3 billion exceeded revenue of $3,1 billion.

With a budget envelope of $4,1 million this year, government expects to run a deficit of $400 million. Employment costs will take up $3 billion from $3,14 billion last year.

After two years in deflation, inflation moved into positive territory in February this year and edged up to 0,48 percent in April.

Ana Lucía Coronel,  who led the IMF team that visited Zimbabwe for Article IV consultations from May 2 to 13, said reducing the wage bill could involve reviewing allowances and benefits and evaluating the size of the civil service with a view to eliminating non-essential posts.  

“Spending pressures stem from high employment costs, government transfers to support specific economic sectors, and elevated discretionary expenditure. Action on these three fronts, while safeguarding social outlays, is therefore crucial,” said Coronel in a statement.

She urged the central bank to refrain from financing the government deficit and contain the issuance of debt and quasi-currency instruments.

“Furthermore, the financial sector should restore its role of intermediating resources in the economy by channelling deposits to productive credit rather than financing fiscal operations,” she said.

The economy is expected to rebound this year driven by a recovery in agriculture and mining but to maintain the growth momentum the IMF says government would need to speed up plans to reduce the deficit to a sustainable level.

Government interventions to support agriculture, while understandable, could be redesigned with the aim of maximizing the benefits on production while minimizing the risks to the public-sector balance sheet,” she said.

Coronel added that restoration of confidence by tackling corruption and promoting private sector investment was essential for attracting the necessary dollar inflows to the economy.

“The team recommends taking action to unleash the potential of the private sector and ensure that growth benefits the most vulnerable segments of the population. Building on the progress already achieved, the government is encouraged to demonstrate that Zimbabwe is open for business,” said Coronel.

“Moreover, there is room for enhancing domestic revenue mobilization, boosting transparency in the mining sector, and improving governance in public enterprises to strengthen the country’s fiscal position.”