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In “tough but hopeful” budget, South Africa raises VAT for first time in 25 years

Comments (0) Actualites, Africa, Economy, Politics

CAPE TOWN (Reuters) – South Africa’s new leadership announced on Wednesday it was taking the politically risky step of raising value-added tax for the first time in 25 years, part of efforts to cut the deficit and stabilise debt under new President Cyril Ramaphosa.

The government of Africa’s most industrialised country has to plug a revenue hole in its budget and repair its economy after nine years of mismanagement under the scandal-plagued Jacob Zuma.

The move to raise VAT to 15 percent from 14 starting in April is expected to generate an additional 23 billion rand ($2 billion) of revenue in 2018/19.

But with the VAT rate unchanged since 1993 the move was likely to prove unpopular ahead of a national election next year.

“This is a tough, but hopeful budget,” Finance Minister Malusi Gigaba said, acknowledging the reality in his budget speech to parliament on Wednesday.

“We decided that increasing VAT was unavoidable if we are to maintain the integrity of our public finances.”

As Gigaba read his budget speech, the rand extended gains to 0.81 percent against the dollar, government bonds firmed and retail shares on the stock exchange fell.

Whatever cabinet Ramaphosa finally settles on will face an uphill battle to revitalise growth and create jobs in a nation still polarized by race and inequality more than two decades after the end of white-minority rule in 1994.

Much of the blame for the state of the economy has been laid at the door of Zuma and his allies. He was forced to step down as president this month by the ruling African National Congress (ANC), following a series of scandals. He has denied all wrongdoing.

But treasury officials sought to project a relatively optimistic outlook as they assessed economic prospects for the immediate future.

Gigaba said poor households would be cushioned against the VAT rate rise through a zero-rating of basic food items such as maize meal and beans, and welfare payments increases.

And the Treasury saw GDP growth at 1.5 percent this year, up from an estimated 1 percent last year, helped by a recovery in agriculture and improved investor sentiment.

South African debt faces the risk of a downgrade to “junk” by Moody’s after downgrades to sub-investment grade by S&P Global Ratings and Fitch last year. Moody’s said it would make a ratings decision soon after the budget announcement.

“We believe we have done enough to avoid a downgrade. We have taken the tough decisions. You can see our debt rates stabilising, you see our budget deficit improving,” Gigaba told a media briefing separately.

 

‘ASSAULT ON THE POOR’

But opposition leader and head of the Democratic Alliance party Mmusi Maimane said the budget meant the cost of living for poor people would rise sharply.

“This is a budget that is an assault against poor people. What we saw today is a consequence of nine years of mismanagement of the economy by the ANC.”

The ultra-left Economic Freedom Fighters, which has six percent of the seats in parliament, boycotted the speech. It demanded that Gigaba, a Zuma ally, be removed.

The Treasury said South Africa faced a 48.2 billion rand revenue gap in the current 2017/18 fiscal year ending in March, down from an earlier estimate of 50.8 billion rand, and that the revenue shortfall was expected to continue into the medium term.

In a sign that it was mostly middle to high income earners who were targeted by the tax increases, the Treasury said the excise duty on luxury goods would be raised to 9 percent from 7 percent, among other taxes.

The budget deficit is expected to narrow to 3.5 percent of gross domestic product (GDP) by 2020 from 4.3 percent in the 2017/18 fiscal year, while gross debt is seen narrowing to 56 percent of GDP in the 2020/21 fiscal year from nearly 60 percent seen in the October mid-term budget statement.

($1 = 11.6359 rand)

 

(By Olivia Kumwenda-Mtambo and Mfuneko Toyana. Additional reporting by Wendell Roelf and Alexander Winning in Cape Town; Editing by James Macharia and Richard Balmforth)

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Nigerian state oil firm spent $5.8 bln on fuel imports since late 2017

Comments (0) Actualites, Africa, Business, Economy, Oil, Politics

ABUJA (Reuters) – Nigeria’s state oil firm said on Tuesday it had spent $5.8 billion on fuel imports since late 2017, as it combats a fuel shortage that has left people queuing for hours at filling stations and hobbled an already-struggling economy.

“The corporation’s intervention became necessary following the inability of the major and independent marketers to import the product because of the high landing cost which made cost recovery and profitability difficult,” the Nigerian National Petroleum Corporation (NNPC) said in a statement.

The price of gasoline is a highly charged subject in Nigeria, Africa’s largest oil exporter. President Muhammadu Buhari in 2016 raised the top gasoline price to 145 naira ($0.4603) per litre, a 67 percent hike, but did not remove a cap for fear of hurting people on low incomes.

The price cap makes it tough for many importers to profit from gasoline and NNPC has imported as much as 90 percent of the nation’s gasoline needs over the past year. Fuel shortages have gripped much of the country in the last few months.

An economic body that advises Nigeria’s government has been in discussion with the state oil company to determine whether gasoline is appropriately priced in the country, a state governor said last week.

The relatively cheaper cost of Nigerian fuel combined with crude oil price rises in the last few months mean smugglers can make more money selling fuel intended for the Nigerian market across borders, creating shortages in the West African giant.

Nigeria’s refining system means it is almost wholly reliant on imports for the 40 million litres per day of gasoline it consumes.

Efforts by Buhari’s predecessor, Goodluck Jonathan, to end expensive subsidies in 2012 led to riots in the streets because the move would have doubled gasoline prices, angering citizens who see cheap pump prices as the only benefit from living in an oil-rich country

(Reporting by Paul Carsten, editing by David Evans)

 

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IMF: Kenya’s $1.5 bln standby credit in place, but not accessible

Comments (0) Actualites, Africa, Economy

NAIROBI (Reuters) – Kenya’s $1.5 bln standby credit facility remains in place until the end of March 2018, but the country cannot access it because conditions have not been met, the International Monetary Fund said on Wednesday, clarifying comments given a day earlier.

“The precautionary… arrangement remains in place until end-March 2018,” the IMF said in a statement.

“Kenya continues to have access to resources since June subject to policy understandings to complete the outstanding reviews.”

On Tuesday, Jan Mikkelsen, IMF representative in Kenya, told Reuters that access to the two-year precautionary facility was lost in June because a review had not been completed due to Kenya’s extended election season.

The two-year precautionary facility, set to expire next month, was put in place in case of unforeseen external shocks that could put pressure on Kenya’s balance of payments.

The East African economy has not tapped the facility, which was preceded by a smaller standby one-year credit line in 2015, as foreign exchange reserves held by the central bank have soared to record highs.

 

CONCERNS OVER DEBT

“The facility is in place but permission to access it has been withdrawn,” said Kenyan economist Anzetse Were. “This comes at a bad time… we’ve seen Moody’s downgrade us to B2 from B1, and this is particularly important in the context of Kenya trying to raise a Eurobond.”

Senior government officials have just finished a marketing roadshow abroad, and they plan to issue dollar-denominated notes for a minimum of $1.5 billion soon.

The IMF has expressed concern over the fiscal deficit, but government officials have said borrowing is necessary to fund the government’s ambitious infrastructure plans, which were a key plank of President Uhuru Kenyatta’s successful re-election campaign.

Kenya’s total debt has risen to about 50 percent of GDP, from 42 percent in 2013, as it borrowed locally and abroad to build infrastructure like a new railway line from Nairobi to the port of Mombasa.

When Kenya secured the precautionary facility, IMF officials said it was recognition of the country’s stable economic fundamentals, as that type of facility is usually reserved for more developed emerging economies.

 

By Duncan Miriri

(Writing by Katharine Houreld; Editing by Simon Cameron-Moore)

 

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2017 Top African Finance Ministers

Comments (0) Africa, Economy, Politics

finance

Economic and finance ministries from West and East African have set the standard for 2017’s API. Ten countries from the region have mastered macroeconomic balance with growth rates above 5% that outpace their demographic growth. Burkina Faso topped the list with 53%, followed by Senegal with 52%, Tanzania with 48%, Ethiopia with 47%, Kenya with 46%, Rwanda with 45%, Niger and Guinea with 43%, Cote d’Ivoire with a 42% growth rate, and Togo with 41%.

The API was extended in 2017 to include all African countries, instead of only those in the CFA zone, or the central and west regions, as was the case in previous editions. API 2017 also saw the inclusion of a new category for evaluation: the digital financial infrastructure worth 40% of a country’s mark, along with endogenous factors 30%, and institutional and fiscal frames, worth 30%. Although growth was substantial last year, financial website Financial Afrik warns that unless African countries can maintain growth of over 10% for over a decade there will not be any major development in the country.

Leading the pack

Topping the list of Africa’s best finance ministers is Burkina Faso’s Minister of Economy, Finance and Development Rosine Sori-Coulibaly. In office since January 2016, Sori-Coulibaly has been working to reduce the weight of current expenditure in the state budget, and has also allowed the public greater access to small business loans. She is joined by Senegal’s Amadou Ba, who brought about an increased cycle of growth garnered by the country since 2014. Third on the list is Philip Mpango, the appointed minister of finance in Tanzania since 2015. Mpango continues to create structural reforms in the country to finance free education and complete the nationalization of precious stones.

Other ministers of note include Ethiopia’s Abraham Tekeste, who is in charge of the implementation of a five-year-plan in the country to display a GDP growth of 11% per year. Over this period, industrial growth is set at 24% per year. Minister of Finance in Kenya Henry K. Rotich is at the root of several in-depth reforms in the East African country. Advocating for diversification, Rotich faces the challenge of financing Kenya’s public external debt. Rwanda’s Minister of Finance and Economic Planning Claver Gatete has distinguished himself in the rationalization of current expenditures, the implementation of innovative policies and the facilitation of procedures for economic operators.

Implementing policies

Rounding out the top ten is Niger’s Hassoumi Masaoudou, who has been minister of finance since 2016 and has the challenge of financing the Economic and Social Development Plan for Niger from 2017 to 2021. In a tense security environment Financial Afrik reports the first year of the plan has been quite successful. Guinea’s Malado Kaba has inherited several major infrastructure projects and is the first Guinean appointed minister of finance to obtain satisfactory results in regard to funding. Former head of the Ivorian Treasury, Cote d’Ivoire’s Adama Kone has reconciled the imperative of controlling the budget with the need for growth. The current cocoa crisis has not broken this balance and Ivorian fundamentals remain strong. Minister of Economy and Finance in Togo since 2015, Sani Yaya’s great challenge remains to restructure the country’s debt and to mobilize funds for development programs. In the two years as finance minister, Yaya’s results have awarded him respect.

Digital Financial Infrastructure

The API identifies four determinants that favor the construction of digital financial infrastructure in African countries. Innovation centers, the organization of public dialogues on financial and regulatory technologies, a national tool for digital verification of identity and the creation of a digital environment secure enough to experiment with the offer of innovative financial services. Both Kenya and Senegal scored highly in this area with both countries developing incubators of technological innovation, such as, spaces for co-creation between entrepreneurs and accelerators of enterprise. Also standing out in this area are Cote d’Ivoire, Senegal, Tanzania and Togo, thanks to the organization of public dialogues on the future of finance, financial regulation and inclusion.

According to Financial Afrik, Africa is improving in terms of economic and political governance, however in terms of transparency and institutional communication efforts must be made. Ministries of Economy and Finance are responsible for strengthening competitiveness between domestic and foreign companies, but at the same time, they need to ensure consumers are protected.    

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More work needed before Congo Republic bailout -IMF

Comments (0) Actualites, Africa, Economy

ABIDJAN (Reuters) – The International Monetary Fund (IMF) ended a week of talks in Congo Republic on Thursday saying the debt-crippled nation had more work to do if it hoped to gain the lender’s approval for a bailout package.

Like other Central African oil producers, Congo has been hit hard by low crude prices. Government revenues have dropped by a third since 2015. The IMF said in its end-of-mission statement that the non-oil economy was in recession, with a contraction of 9.2 percent expected for this year.

The Fund said it was encouraged by Congo’s draft 2018 budget and added that progress had been made in formulating medium-term macroeconomic and structural policies it could support.

However, it said the government needed to do more to restore debt sustainability, urging it to finalise the hiring of legal and financial advisors. More progress towards strengthening governance was also needed.

Congo is regularly singled out by anti-corruption groups for the opaque management of its oil sector.

The finance ministry acknowledged that “immediate measures” were needed.

“That is why… Congo Republic will open negotiations with its main creditors in the aim of restructuring its debt,” it said in a statement.

Once the Fund’s recommendations were carried out, “a financial arrangement to support Congo’s economic programme would be discussed at staff level before being proposed for the IMF Executive Board’s consideration,” said Abdoul Aziz Wane, who headed the mission.

The slow pace of the negotiations with the IMF, which have been under way for months, as well as continuing legal uncertainties, have compounded Congo’s acute liquidity pressures, according to Fitch.

Unsustainable debt meanwhile had led to high default risks for private creditors, the ratings agency said. ​

The IMF said in October that the country’s public or publicly guaranteed debt totalled $9.14 billion, or around 110 percent of GDP, by the end of July.

Much of that debt is believed to be owed to oil traders, who lent money to the government against future crude shipments.

A construction firm has also filed suit in a French court seeking payment of over $1 billion for public works projects dating back decades. That debt was not included in the IMF’s estimate.

Negotiations to hammer out the terms of an IMF assistance package will continue early next year, the finance ministry said in its statement.

 

 

(By Joe Bavier. Additional reporting by Aaron Ross; Editing by Alison Williams and John Stonestreet)

 

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Investors fear South African market euphoria is overdone

Comments (0) Actualites, Africa, Economy

LONDON (Reuters) – Businessman Cyril Ramaphosa, the new leader of South Africa’s ruling ANC party, needs to fix a sluggish economy and a deeply divided society. Market euphoria after his election may not reflect the looming slog, fund managers say.

The outcome, announced late on Monday, was widely expected. The rand has rallied 7 percent against the dollar since Thursday, and government bond yields fell 58 basis points over the same period. Credit default swaps, used to price default risks, are down around 16 bps since end-Thursday.

On Tuesday, shares in South African banks – a barometer of economic and political health – jumped 8 percent.

Ramaphosa, likely to become South Africa’s president after the 2019 elections, is considered an improvement on scandal-mired Jacob Zuma. But the good news seems already in the price – a CDS-based model by S&P Capital shows South African foreign debt priced in line with its rating for the first time in 2 1/2 years following the ratings cut in late November.

The country’s domestic bonds have long traded as if its credit rating were a notch lower, the model shows, with yields well above similarly rated countries such as Indonesia.

Many even reckon the market reaction is overdone. JPMorgan analysts see the rand now as 9 to 11 percent “rich”, based on recent moves in other emerging currencies as well as weaker prices for gold and platinum, major South African exports.

“If you look at local (bond) markets, I’d say the market relief was probably not justified by fundamentals. The structural weakness is very entrenched and won’t go away easily,” said Anders Faergemann, senior portfolio manager at PineBridge Investments.

He was citing sub-one percent growth, stubborn inflation, a 28 percent jobless rate, rising government spending and capital shortfalls at state-run companies. Those problems could be tough to fix in 2018, when Zuma will still be president.

“That could lead to policy paralysis, and that is the real risk,” Faergemann said.

The news has not altered the view on South Africa at AXA Investment Managers, where Sailesh Lad, the head of emerging debt, retains an underweight position.

Ramaphosa is not a “game-changer”, Lad said, noting the budget deficit blowout, announced in October by finance minister Malusi Gigaba, remained in place. Gigaba’s budget pencilled in a big increase in borrowing and a deficit increase to 4.3 percent of gross domestic product.

The higher spending had appeared to confirm that the rating on South African local bonds would be cut to “junk” territory by Moody’s and S&P Global, ejecting the debt from key indexes and triggering capital outflows of over $10 billion.

However, Moody’s held off the downgrade last month and Ramaphosa-linked market gains partly reflect hopes it may not do so at its early-2018 review.

If the new ANC leader does implement promised reforms, some hope the country could eventually regain investment grade, as Portugal has just done and Ireland did in 2014.

But most predicted South Africa will be harder to fix, given Ramaphosa’s narrow victory margin, racial divides and entrenched corruption, with his ascent merely having delayed the inevitable to later in 2018.

Political risk consultancy Eurasia reckons, in fact, that with elections looming, the ANC may lurch further to the left, and will not therefore “provide sufficient grounds to reverse ratings downgrades before mid-2018.”

 

(By Karin Strohecker and Claire Milhench. Additional reporting by Marc Jones, Sujata Rao and Ritvik Carvalho, writing by Sujata Rao, editing by Larry King)

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South Africa’s private-sector activity slows in November: PMI

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JOHANNESBURG, Dec 5 (Reuters) – South African private sector activity slowed in November as new orders and output fell, a survey showed on Tuesday.

The Standard Bank Purchasing Managers’ Index (PMI), compiled by IHS Markit, fell to 48.8 in November from 49.6 in October, staying below the 50 mark that separates expansion from

contraction.

“Lower underlying demand formed the basis for the decline as new orders fell at the quickest pace observed since early 2016.

This led output to fall, and at a faster rate than that noted in the previous month,” IHS Markit said in a statement.

South Africa’s economic gloom has been compounded by allegations of corruption in state-owned companies and of influence-peddling in government that have hurt investor confidence.

The ruling African National Congress will this month elect a successor to President Jacob Zuma as party chief, adding to the climate of uncertainty.

“Apart from South Africa’s economy being characterised by generally weak growth, we note that the rating agency review on November 24th and the upcoming ANC elective conference will have

delayed production and consumption decisions,” Standard Bank economist Kim Silberman said.

S&P Global Ratings downgraded South African debt to junk status on Nov. 24, citing its deteriorating economic outlook and public finances. Moody’s put the country on review for a

downgrade.

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Kenya cuts electricity tariffs for manufacturers to create jobs

Comments (0) Actualites, Africa, Economy

NAIROBI (Reuters) – Kenya is cutting night-time electricity tariffs for manufacturers by half to entice investors and boost economic growth and job creation, a top ministry of energy official said on Wednesday.

The East African nation charges firms 15.70 shillings ($0.1522) per kilowatt hour, which is seen as uncompetitive compared with other African nations such as Ethiopia, South Africa and Egypt.

Joseph Njoroge, the principal secretary in charge of electricity at the ministry, said the reduction will apply from 10 pm to 6 am every day to boost usage of electricity when most households and businesses shut down.

“It is about, how do we create jobs for our people? How do we grow as a country? How do we move from an agro-based to an industrial-based country so that we can be able to enhance our GDP,” he told Reuters on the sidelines of an energy conference.

During his inauguration for a second term, President Uhuru Kenyatta said he planned to increase the share of manufacturing to annual economic output to 15 percent from 9 percent.

The government has been trying to boost investments in the sector in recent years with modest success, including the opening of light vehicle assembly plants by Peugeot and Volkswagen.

Taxes account for about a third of electricity tariffs and Njoroge said they will consider whether some of the charges can be reduced.

Kenya has an installed electricity capacity of 2,336 megawatts (MW) with maximum demand of 1,727 MW, Njoroge said. It has increased the share of the population with access to electricity to 70 percent in the last four years from 30 percent.

 

($1 = 103.1500 Kenyan shillings)

 

(Reporting by Duncan Miriri, editing by Louise Heavens)

 

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S.Africa’s Zuma calls for action after S&P downgrade, rand up on Moody’s reprieve

Comments (0) Actualites, Africa, Economy

By Olivia Kumwenda-Mtambo

JOHANNESBURG (Reuters) – South African President Jacob Zuma called for concrete measures to boost growth after S&P Global Ratings downgraded the local currency debt to sub-investment grade, while foreign currency debt was pushed deeper into “junk” territory.

The rand recovered on Monday from steep falls suffered late on Friday after the downgrade, taking some relief from Moody’s decision to only place South Africa on review for downgrade.

A cut to “junk” on the local currency debt by both S&P and Moody’s could have seen South African debt lose its place in Citi’s World Government Bond Index (WGBI), the biggest of the global benchmarks and tracked by about $2-3 trillion of funds.

Zuma directed Finance Minister Malusi Gigaba on Monday to finalise proposals for expenditure cuts amounting to 25 billion rand ($2 billion) and revenue boosting measures totalling 15 billion rand – including through taxes.

A proposal by a presidential commission to introduce free higher education should also be implemented in a “fiscally-sustainable manner”, the statement from Zuma’s office said.

Gigaba in October unveiled a gloomy outlook for the economy as he flagged weaker growth expectations, wider budget deficit estimates and rising government debt.

Both S&P and Moody’s cited deterioration in South Africa’s economic growth prospects and public finances.

As of 1527 GMT, the rand was trading at 13.7625 per dollar, 2.86 percent firmer than its New York close on Friday, when it had tumbled 2 percent following S&P’s announcement.

“The market is finding some relief in the fact that Moody’s has chosen to give us basically till February before they change our rating, if they do change our rating,” said Shaun Murison, currency strategist at IG Markets.

In fixed income, the yield for the benchmark government bond was down 9 basis points to 9.245 percent, also recovering after rising as much as 11 basis points earlier in the session.

Moody’s said the review will allow it to assess the South African authorities’ willingness and ability to respond to the rising pressures through growth-supportive fiscal adjustments that raise revenues and contain expenditures.

“The review period may not conclude until the size and the composition of the 2018 budget is known next February,” Moody’s senior analyst for South Africa, Zuzana Brixiova, said in a statement.

Moody’s rates South Africa’s foreign and local currency debt on their lowest investment grade rung of Baa3.

VOLATILITY

S&P’s decision will see South Africa excluded from the Barclays Global Aggregate index, whose inclusion criteria requires investment grade rating on its local currency debt from any two ratings agencies.

Fitch already rates South African debt as “junk”, and affirmed the rating on Thursday.

If nothing changes, the country will be downgraded to “junk” by all ratings agencies and the WGBI dream will be no more, at least for many a year, said Standard Bank chief trader Warrick Butler in a note.

“What this means, in terms of the currency, will be increased volatility.”

Falling out of the WGBI could have led to a larger sell-off in bonds, even though rising yields could present a buying opportunity for some yield-hungry investors.

“If you look at some of the metrics the real yields are among the highest in EM, the domestic curve is extremely steep, the current account is in better place than it was three to four years ago and the rand is quite competitive against likes of (Russia’s) rouble or Brazilian real,” said London-based Paul Greer, senior trader at Fidelity International.

“On the local side the real yield and steepness of curve look attractive from tactical perspective.”

Analysts said an exclusion from the Barclays index would lead to outflows of about $2 billion, compared with more than $10 billion if South Africa was to fall out of Citi’s WGBI.

South African debt was dropped from one the widely used global bond indexes, the JPMorgan Emerging Market Bond Index Global in April after S&P and Fitch downgraded foreign currency debt to sub-investment grade.

On the stock market, the Top-40 index was 0.35 percent lower at 53,810 while the broader all-share was down 0.28 percent at 60,157.

($1 = 13.7678 rand)

(Additional reporting by Sujata Rao in London; Editing by James Macharia/Mark Heinrich)

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Zimbabwe’s economic situation “very difficult”: IMF mission chief

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JOHANNESBURG (Reuters) – Zimbabwe’s economic growth is threatened by high government spending, an untenable foreign exchange regime and inadequate reforms, a senior International Monetary Fund (IMF) official said.

Zimbabwe was once one of Africa’s most promising economies but suffered decades of decline as former President Robert Mugabe pursued policies that included the violent seizure of white-owned commercial farms and money-printing that led to hyperinflation.

Mugabe, 93, resigned on Tuesday after nearly four decades in power following pressure from the military, the ruling ZANU-PF party and the general population.

New ZANU-PF leader Emmerson Mnangagwa is expected to be sworn in as Zimbabwe’s president on Friday.

Zimbabwe has not been able to borrow from international lenders since 1999 when it started defaulting on its debt, and has $1.75 billion rand in foreign arrears.

“The economic situation in Zimbabwe remains very difficult,” Gene Leon, IMF’s mission chief for Zimbabwe said in a statement to Reuters late on Wednesday.

“Immediate action is critical to reduce the deficit to a sustainable level, accelerate structural reforms, and re-engage with the international community to access much needed financial support.”

Leon said Zimbabwe should resolve arrears to the World Bank, African Development Bank and the European Investment Bank, among other reforms, for the IMF to consider future financing request from the country.

Zimbabwe should also be ready to implement strong macroeconomic policies and structural reforms to restore fiscal and debt sustainability, Leon said.

 

(Reporting by David Lawder in Washington and Olivia Kumwenda-Mtambo in Johannesburg; Editing by James Macharia)

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