In a report after annual consultations with the authorities, the IMF said the country's external position was "precarious," with foreign debt of about 7.1 billion dollars, or 162 percent of economic output, at end-2009.

"In the absence of timely corrective policy measures, economic growth would slow down significantly in 2010 and risks in the banking system would continue to rise," the Washington-based fund said in a statement.

"The outlook for 2010 is highly uncertain," it said, citing large budgetary wage increases, a significant slowdown in private capital inflows, and external and banking system "vulnerabilities"

in the country once known as the "breadbasket" of southern Africa.

The fund called for "sound policies and good governance," saying they were critical to pave the way for eventual debt relief and access to donor financing.

The government was "strongly encouraged" to improve its cooperation with the fund on policies and payments but IMF directors supported the continuation of its technical assistance to Zimbabwe in targeted areas.

Zimbabwe's economy has been stabilizing since a power-sharing government, formed last year between President Robert Mugabe and former opposition leader Morgan Tsvangirai, ditched the local dollar in favour of the US dollar.

But Finance Minister Tendai Biti last month downwardly revised the growth forecast for this year to 4.8 percent from 7.7 percent, citing slower-than-expected foreign investment.

The IMF projected growth would slow to 2.2 percent this year from 4.0 percent in 2009, following a contraction of 14 percent the previous year.

The fund acknowledged that Zimbabwe's humanitarian situation and food security had improved while most schools and hospitals have been reopened and the incidence of cholera has declined.

In 2009, donors provided significant off-budget financing for social services and humanitarian assistance totalling 540 million dollars, or 12 percent of gross domestic product, the broad measure of economic output.

The government has also broadly adhered to cash budgeting, the fund said.

By The Times (SA)