The International Monetary Fund (IMF) has granted Zimbabwe a temporary reprieve, but the country must implement broader economic reforms to avoid expulsion from the Fund.
"Taking into account Zimbabwe's increased payments to the IMF and its initial policy steps since the last review in February 2005, the executive board decided to postpone a recommendation to the IMF's board of governors with respect to Zimbabwe's compulsory withdrawal from the IMF. This decision provides Zimbabwe with a further opportunity to strengthen its cooperation with the IMF in terms of economic policies and payments," the Fund noted in a statement on Friday.
The executive board said it would reconsider Zimbabwe's compulsory withdrawal from the IMF within six months, and "welcomed Zimbabwe's payments of US $131 million to the IMF since the last review, which resulted in a significant decline in the country's arrears to the IMF".
The board also said the Zimbabwe government had stated its intention to fully eliminate arrears to the IMF currently totalling $175 million by November 2006.
Local economist Dennis Nikisi told IRIN the IMF would be hesitant to expel Zimbabwe, as "the Fund would lose all influence over the country" if it did.
"The IMF needs to have some kind of leverage, and what more leverage than having the country still within the Fund's ambit? This allows the IMF to set certain conditions for economic and political reform," Nikisi pointed out.
The Fund recognised that "Zimbabwe had taken some initial policy measures in the area of exchange rate and monetary policies since the last review".
Nikisi added that the government had "allowed the Zimbabwe dollar to slide to around Zim $24,000 to Zim $25,000 per US $1, and allowed the fuel and maize markets to liberalise by withdrawing the Grain Marketing Board's monopoly of grain imports and allowing private fuel importers" to enter the market.
But the IMF observed that these measures "fell well short of what is needed to address Zimbabwe's economic difficulties" and warned that "unless strong macroeconomic policies are undertaken without delay, economic and social conditions could deteriorate further".
Zimbabwe was urged to adopt and implement "a comprehensive and coherent adjustment programme as a matter of urgency in the areas of fiscal, monetary, and exchange rate policies and structural reforms".
Moreover, the board stressed that providing adequate social safety nets and food security for vulnerable groups, including those affected by 'Operation Restore Order' and HIV/AIDS, were critical priorities.