The IMF said in a statement that Zimbabwe's coalition needed to implement radical changes in economic policy without delay, including sufficient budgetary allocations to key infrastructure rehabilitation projects and social programmes.

"To this end, budgetary expenditures need to be better prioritised and the central government wage bill needs to be reduced as a share of revenues, including through the elimination of ghost workers based on the results of the on-going payroll audit," the Fund said.

Zimbabwe has just completed a manpower audit aimed at ridding the civil service of ghost workers amid reports that the government was paying salaries to more than 10,000 people who are not officially employed by the State.

A mission from the IMF led by Vitaliy Kramarenko visited Zimbabwe from March 3 to 17 to conduct Article IV consultation discussions.

The mission met with Prime Minister Morgan Tsvangirai, Finance Minister Tendai Biti, Economic Development Minister Elton Mangoma, Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono and other senior government officials, as well as representatives of the diplomatic and business communities, and civil society organisations and labour unions.

The IMF mission commended the progress made since the adoption of a multi-currency system in early 2009 which helped restore price stability, restart financial intermediation, and impose fiscal discipline by precluding the option of budget deficit monetization.

It noted that Zimbabwe's budget revenue has increased significantly which helped finance improved delivery of public services, while the fiscal position was broadly balanced.

"However, the economic recovery remains fragile and domestic and external imbalances are building up ; therefore, significant policy challenges need to be addressed without delay," it said.

Risks to the banking system are rising significantly and should be mitigated by stepping up prudential measures.

"In addition, RBZ governance needs to be strengthened, including through appointment of a Reserve Bank of Zimbabwe governing board composed of reputable members and approval of an RBZ operating budget envisaging a significant downsising and refocusing on core activities under the multi-currency system," the statement added.

A new law governing operations of the RBZ was this month approved by the senate and is now waiting for President Robert Mugabe's signature before becoming law.

-APA