IMF, govt differ over economic outlook

[This report does not necessarily reflect the views of the United Nations]

JOHANNESBURG- - In the absence of any bold changes in policy direction, Zimbabwe's economic outlook remains bleak, says the International Monetary Fund (IMF).

The executive board noted that the annual IMF staff report on Zimbabwe showed an ongoing socioeconomic decline that would have "particularly detrimental effects on the poorest segments of the population".

The executive "expressed deep concern over the continued sharp economic and social decline in Zimbabwe, with prospects of continued triple-digit inflation, further [production] output declines, and increased poverty".

Food security was an urgent issue, "given the sharp fall in agricultural production. Directors noted that stagnant export earnings and the necessary rise in food imports will squeeze non-food imports, increasing Zimbabwe's vulnerability to external shocks", such as drought.

The substantial humanitarian and economic consequences of 'Operation Restore Order' - the government's controversial clean-up campaign that left some 700,000 people without homes or livelihoods, or both - also posed "further downside risks" to the country's prospects.

Zimbabwe's economy has deteriorated sharply since 1997: real GDP declined by almost 30 percent between 1997 and 2003, while inflation soared from about 20 percent in December 1997 to a peak of 623 percent in January 2004.

This was mainly due to the impact of the government's controversial land redistribution programme on the agricultural sector.

"Agricultural production - the mainstay of the economy - collapsed with the disruption caused by the violent implementation of fast-track land reform," the Fund noted.

Investment in the country fell sharply, "and shortages of food, fuel, electricity and other basics became pervasive", while economic performance lagged markedly behind those of its neighbours in Southern Africa.

The human cost of the government's policies has been high. "Zimbabwe's human development indicators - once among the best in sub-Saharan Africa - have deteriorated sharply to rank of 147th out of 177 countries in the world," the IMF pointed out.

"More than two out of three Zimbabweans are unemployed, while poverty and emigration have risen sharply. The HIV/AIDS pandemic has been left largely unchecked, with the infection rate estimated at about 25 percent of the adult population. Life expectancy has declined to below 40 years from around 60 years 15 years ago, while child mortality has risen sharply to 126 (per 1,000 live births) from 90 in 1995, partly reflecting declining immunisations and the AIDS pandemic," the report stressed.

IMF staff projected that continued difficulties in agriculture, rising inflation and foreign exchange shortages, particularly for fuel imports, would cause real GDP to contract by some 7 percent, and inflation rising to over 400 percent by the end of 2005.

The country was also off-track for meeting the Millennium Development Goals (MDGs). "A recent assessment indicated that, under current policies, only two targets are achievable: immunisation of one-year olds against measles, and access to safe drinking water. The HIV/AIDS pandemic, falling incomes and the rapidly deteriorating health and education services affect most of the other MDGs," the report said.

Progress towards the MDGs would depend on achieving sustainable growth, controlling the HIV/AIDS pandemic, and improving food security.

The Fund called for "fundamental structural reform, including improvements in governance" in order to turn the country's fortunes around.

However, the government of Zimbabwe "took a different view of recent developments and the economic outlook".

"In their estimate, output declined by only two and half percent in 2004 and will grow by two percent this year," the report noted.

"Although drought had severely affected the 2004/05 maize crop, tobacco and wheat (which were less affected) as well as mining would perform well this year, while manufacturing would bottom out ... moreover, they stressed that in comparison to the peak in early 2004, inflation had declined considerably by mid-2005 on account of their policies to turn around the economy."

The government has also accused western countries of imposing de facto sanctions in response to its fast-track land reform programme, which was accompanied by violence and ignored court rulings ordering its halt.