Context: The authorities have demonstrated their commitment to the program by taking important steps towards advancing their macroeconomic and structural reforms, despite increasing economic and financial difficulties. The policy reform agenda for the remainder of the Staff-Monitored Program (SMP) consists of: (a) mitigating the impact of this year’s adverse shocks on the external position and growth; (b) improving the investment climate; (c) restoring confidence in the financial sector; and (d) garnering support for a strategy to clear arrears to the international financial institutions (IFIs). Recent developments, outlook, and risks: Zimbabwe’s economic and financial conditions remain difficult because of inadequate external inflows given the arrears situation, low commodity prices which have kept liquidity conditions tight, and an appreciating U.S. dollar. Growth has slowed, unemployment is rising and increasingly there is a shift in economic activity to the informal sector. The external position remains precarious with very low levels of international reserves, and the country is in debt distress. Risks to the outlook stem mainly from fiscal challenges, weak global commodity prices, adverse weather conditions, and policy implementation in a difficult political environment. However, further advancing the reforms and reengaging with creditors could reopen Zimbabwe’s access to financial support that could reverse the adverse economic trend and lift the economic outlook. Program performance: The program is on track. Four of the five quantitative targets for end-June 2015, and all the structural benchmarks for the second review were met. Although a recently contracted $200 million nonconcessional loan breached the quantitative target on nonconcessional borrowing, it avoided the accumulation of additional external arrears. The authorities have made significant progress in implementing their reform agenda, particularly in financial sector and labor-market reforms. They
