ZIMBABWE'S ECONOMY 'NEAR IMPLOSION' By Stephen Fidler in Washington
Zimbabwe's reserves have fallen to levels covering no more than a few days of imports, according to a British government assessment of the country's economic crisis. The assessment is an indication of mounting international concern over the deteriorating economy of the landlocked African state.
Zimbabwe's government has denied there is a crisis, saying its economy is being battered by speculators and hoarders. But one British official said the UK considered the Zimbabwean economy "near implosion".
According to the UK report, completed this month, the country's already substantial debt arrears could worsen if economic policies are left unchanged. It could lead to a suspension of the country's World Bank programme.
In July, Zimbabwe negotiated a letter of intent for a $193m (£119m) standby credit with the International Monetary Fund, but the agreed programme was never implemented. The IMF and other lenders and donors have since suspended aid.
The British assessment describes declining foreign exchange reserves, inflation above 70 per cent compared with an IMF year-end target of 30 per cent and a growing budget deficit, which Zimbabwe has been funding by printing money.
It said Zimbabwe registered an unsustainable net outflow of $429.8m between January and October, leading to a desperate shortage of foreign exchange. The government had also been using reserves to prop up the Zimbabwean dollar at a level it implied was significantly overvalued.
"The Reserve Bank's holdings of usable foreign exchange reserves are said to provide only 2-3 days' import cover," the report said. Government and state enterprises were in arrears to almost all creditors, though payments to the World Bank and IMF were within their grace period.
The Reserve Bank borrowed $150m in November from a German bank in a loan secured by gold, but there was little left to increase reserves after debtors had been paid, the report said.
The assessment said the budget deficit for this year was expected to be about 10 per cent of GDP instead of the 5.4 per cent agreed with the IMF in July. The overrun is due to a number of factors, including record defence expenditure that will be about 33 per cent over budget even before off-budget spending on Zimbabwe's participation in the war in neighbouring Congo has been taken into account.
Peter Hain, the British Foreign Office minister with responsibility for Africa, said the UK was "very concerned" about the economic deterioration in Zimbabwe. In Washington this week for talks with officials from the US, the IMF and World Bank, Mr Hain said it was very important for Africa as a whole that Zimbabwe succeeded.