Country Brief

The Zimbabwe African National Union-Patriotic Front (ZANU-PF) won the elections of 1980 under the leadership of Robert Mugabe, who became Prime Minister in 1980. The constitution was changed in 1987, making Robert Mugabe executive President. Robert Mugabe has been in power since 1980 and was last re-elected in 2002 for a six-year term.

The last Parliamentary elections were held on March 31, 2005 and ZANU-PF won a comfortable two-thirds majority in the 150 seat parliament. In November 2005, the ruling party also won elections for the newly-created Senate, but with a historically low turn out. Differences of views on whether to participate in the elections led to internal struggles in the main opposition party, MDC, which then split into two factions. There are plans to harmonize Presidential and Parliamentary elections so that they run concurrently for five years starting in 2008.

Economy

In the decade following independence, Zimbabwe’s economic growth was strong, and living standards improved significantly. In the late 1990s, Zimbabwe’s economic growth began to slow, following a balance of payments crisis and repeated droughts. By 2002, Zimbabwe’s economy was in trouble as a result of poor macroeconomic management, political violence and the wider impact of a land reform program on food and export crop production, as well as the important links the commercial agricultural sector had with the financial and manufacturing sectors. Moreover, with the exchange rate becoming progressively overvalued, foreign exchange shortages became common place. The government and parastatals also started to build up large external arrears.

Since 1999, Zimbabwe’s economic conditions have deteriorated, with realGDP falling by nearly 35 percent in cumulative terms while inflation has skyrocketed, with official annual inflation rate reaching over 7,600 percent in July 2007. Zimbabwe’s high inflation has originated mainly from an extremely large public sector and subsidized loans availed to priority sectors, in particular, agriculture. Despite relatively strong revenue collection, the fiscal deficit, including quasi-fiscal activities by the Reserve Bank of Zimbabwe (RBZ) to support loss-making parastatals and other strategic sectors, reached over 80 percent of GDP in 2006. With limited scope for external financing, a large part of the public sector financing needs were met through money creation, fuelling rapid monetary expansion and a sharp rise in inflation. With the persistent high inflation, the Zimbabwe dollar has continued to lose value on the parallel market, to about Z$250,000 per US dollar (as of end-August 2007), compared with the official inter-bank rate of Z$30,000

Zimbabwe's external position has also been under considerable pressure. The current account deficit has deteriorated steadily over the past five years, primarily due to the collapse of agricultural exports. Although the decline in agricultural exports has partly been compensated for by increases in the value of mining exports on account of higher world prices, the volume of recorded mining exports has fallen in recent years due in part to smuggling. Owing to foreign exchange shortages, imports have been compressed, constraining the supply of essential inputs for production. During the past two years, the Government made efforts to build international reserves, but this was accomplished by the accumulation of external arrears. At the end of 2006, international reserves stood at US$58 million, about 0.4 months of imports.

Zimbabwe ’s external debt burden is unsustainable and arrears accumulation is expected to continue. At the end of 2006, Zimbabwe’s external debt was US$4.7 billion, equivalent to over 300 percent of exports, with external arrears estimated at US$2.7 billion. About 70 percent of Zimbabwe’s external debt is owed to official creditors, including multilateral creditors.

Development Partners and Government

Zimbabwe ’s relationship with the international community, especially Western countries, remains strained. Zimbabwe has not been a member of the Commonwealth since December 2003. Most donors have scaled down or suspended their operations in Zimbabwe, T he European Union, the United States and some Commonwealth countries have introduced measures such as restrictions on travel and asset ownership for select senior government officials. External financial support is now mainly confined to humanitarian assistanc e , including HIV/AIDS, social protection, and human rights. The IMF Board suspended Zimbabwe’s voting rights on June 6, 2003 because of Zimbabwe’s lack of cooperation in policy implementation and payments. In parallel with this decline of relations with Western development partners, the Government has strengthened political and economic relations with some non-traditional partners, such as China and India.

World Bank Strategy and Programs in Zimbabwe

The World Bank suspended its lending program in Zimbabwe when the country went into arrears in 2000. The Bank’s role is currently limited to technical assistance and analytical work focusing on macroeconomic policy, food security/agrarian issues, social sector expenditures and delivery, infrastructure assessment, and HIV/AIDS program support.

Between 1980, when Zimbabwe joined the Bretton Woods Institutions, and 2000 when the country fell behind in its payments on World Bank loans, the Bank funded a total of 33 projects worth US$1.6 billion. Bank support concentrated on infrastructure, agriculture, health support, and community and local government programs, financed from both International Development Association (IDA) Credits (42%) available to low-income countries, and International Bank for Reconstruction and Development (IBRD) loans (58%) available to middle-income countries. Zimbabwe’s arrears to the World Bank were estimated at US$521 million as of September 13, 2007. The arrears to the IMF stood at US$134 million at end-July 2007 and to the AfdB at US$359 million as of end-April 2007.

After pursuing general policy advice between 2000 and 2004, the World Bank prepared the first Interim Strategy Note in 2005 (pdf), with the objective of facilitating dialogue among stakeholders and closing knowledge gaps. Activities included economic analytical work, and analyses in agriculture, poverty, social services and infrastructure. Given limited Bank budget, the bulk of the activities were funded by a Trust Fund set up to support work in Low-Income Countries under Stress (LICUS).

The main achievements of the first ISN were:

• Supported the preparation of Poverty Assessments by the Ministry of Public Services, Labor and Social Welfare to inform policy making process.
• Assisted the National AIDS Commission in strengthening its program monitoring and training of laboratory technicians.
• Supported the analysis of social services (health, education and social welfare) in order to assist the Ministry of Finance improve its budget management.
• Carried out a study of land and agricultural issues to assist the Government in its agrarian policy.
• Carried an assessment of the infrastructure sector for the Ministry of Transport which could inform a future investment strategy.
• Worked with Government in executing a limited number of policy notes with the aim of improving policy making processes.

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