Zimbabwe: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director for Zimbabwe

EXECUTIVE SUMMARYOutlook. The economic rebound experienced since 2009 has ended, with economicgrowth decelerating in 2013. The external position is vulnerable, with a wide currentaccount deficit, an overvalued exchange rate, and low international reserves. Thebaseline scenario is marked by sluggish growth in 2014 and over the medium term, withrisks clearly to the downside in the near term. Key risks to the outlook include lowerthan programmed tax collections, policy slippages, financial sector stress, and globalcommodity prices. Zimbabwe faces these risks with very thin buffers.Performance under the staff-monitored program (SMP). The SMP provided a usefulanchor for Zimbabwe in an election year. However, progress in implementing theprogram was complicated by a long electoral process and a protracted post-electiontransition, as well as an adverse external environment. Thus, a number of quantitativetargets and structural benchmarks were not met. Discussions on the first and secondreviews are at an advanced stage.Macroeconomic policies in the near term. The economic environment remainsdifficult, posing significant risks to the budget and to financial stability. Policy effortsshould continue to aim to restore fiscal and external sustainability and reduce financialvulnerabilities.Medium-term challenges. Zimbabwe faces serious medium-term challenges, and avigorous reform program is needed to put the country on a sustainable, inclusivegrowth path. In particular, a fiscal strategy aimed at rebalancing the expenditure mixshould be a priority—including to prevent the accumulation of domestic arrears.Significant financing is needed to address the infrastructure deficit and widespreadpoverty, as targeted under the government's own development plans. To attract muchneededFDI and access affordable financing, the authorities need to improve thebusiness environment.Resolving external payment arrears. Zimbabwe's debt situation remains a seriousimpediment to external sustainability and economic development. Addressing this issuewill require a comprehensive arrears clearance framework underpinned by strong macropolicies, in what will likely be a protracted process.