Zimbabwe Economy Cannot Sustain Own Currency – Biti

“We don’t have an economy that can sustain a currency,” he told Reuters.

Biti told Reuters in an interview at the African Development Bank annual assembly in Abidjan that accumulated interest was pushing up public debt and it currently totalled around $6.2 billion, higher than previous estimates.

He said Zimbabwe’s economy should grow faster than expected this year, thanks to $1 billion in foreign investments and some expected donor aid, but added its debt burden was “crippling”.

However, the International Monetary Fund (IMF) on Tuesday urged Zimbabwe to take corrective measures to repair its economy and warned that without them economic growth could slow significantly this year undermining progress made so far.

In its annual review of Zimbabwe’s economy, the IMF said there were signs that economic and humanitarian conditions were improving following a decade of steep economic decline and hyperinflation.

Zimbabwe’s economy had stabilised since a unity government formed by rivals President Robert Mugabe and Prime Minister Morgan Tsvangirai last year adopted the use of multiple foreign currencies to replace a worthless local dollar.

The IMF said the multi-currency system “would serve Zimbabwe well in the the coming years.”

It said the Zimbabwe dollar could be re-introduced once the government had established a track record of sound policies and adopted a framework focused on price stability.

The IMF report cautioned that the outlook for 2010 was “highly uncertain” and urged the authorities to reduce the wage bill and non-essential spending to preserve gains made so far.

Biti announced a salaries freeze but his boss in the party, Tsvangirai, supported by the Public Service Minister Elphas Mukunoweshuro said there was no such policy.

The IMF said the wage bill was crowding out growth-orientated expenditures while private capital inflows had declined over uncertainties about a government plan to give black Zimbabweans majority stakes in foreign companies.

The plan had stoked fears among investors that the scheme could resemble Mugabe’s chaotic land reform programme, which destroyed the country’s once vibrant agricultural sector.

The IMF said maintaining the rule of law, enforcing property rights and ensuring security of land tenure were important to improve the business climate.

“Sound policies and good governance will be critical to pave the way for eventual debt relief and access to donor financing,” the IMF said in a statement.

The Fund said some IMF directors believed that such a track record could be established with the help of an IMF-monitored staff programme, which does not entail funding.

Other IMF directors, however, said the authorities should demonstrate clear progress in economic policies and data collection before an IMF-monitored programme was considered.

After a contraction of about 14 percent in 2008, economic growth resumed to about 4.0 percent last year amid a pickup in manufacturing and services. Meanwhile, most schools and hospitals have reopened and incidence of cholera have declined, the IMF added.

“To solidify these gains, as well as to reduce the significant external and financial vulnerabilities, it will be critical that the authorities undertake decisive policy measures,” said the IMF.

It said a track record of good policies will help restore donor funding to Zimbabwe and could eventually lead to the cancellation of the country’s foreign debts.  Reuters/Radio VOP