Zimbabwe’s economy has stabilised following a decade-long slump after a unity government formed by rivals President Robert Mugabe and Prime Minister Morgan Tsvangirai last year adopted the use of multiple foreign currencies.

“The economic recovery remains fragile and domestic and external imbalances are building up. Therefore, significant policy challenges need to be addressed without delay,” the IMF said in a statement after a staff visit to Zimbabwe.

Zimbabwe owes the IMF $140m in arrears and its total external debt is about $6bn.

The IMF said economic policies in Zimbabwe have improved significantly following a decade of decline in the economy, including hyperinflation in 2007-2008.

But the government’s wage bill needed to be reduced and budgetary expenditures to be better prioritised.

“The government needs to ensure that sufficient budgetary allocations are made to critically important infrastructure rehabilitation projects and social programmes supporting vulnerable groups while maintaining a fiscal stance consistent with macroeconomic stability,” the IMF statement said.

It said banking sector risks were rising and this should be mitigated by prudential measures.

Central bank governance also needed to be improved, including the appointment of a Reserve Bank of Zimbabwe governing board and a reduced central bank operating budget which should focus on core activities.