The International Monetary Fund announced Thursday it would work with Zimbabwe for the first time in more than a decade, as the troubled country headed toward court-ordered elections next month.
The Fund is not planning to provide Zimbabwe with any new funds, but Managing Director Christine Lagarde has approved monitoring of the country's economic program this year, the Fund said in a statement.
The agreement with Zimbabwe marks a key step in normalizing relations with the impoverished southern African nation, whose fragile economy is threatened by political strains and massive public debt.
In October, the IMF relaxed its restrictions on providing consulting support to Zimbabwe as the country moved toward constitutional reforms and showed improvement in economic policy cooperation with the Fund.
The restrictions were imposed when Zimbabwe fell behind in repayments to the Fund. The IMF stripped Harare of its voting rights in 2003 and nearly expelled the country, a rare move for the Washington-based institution, in 2006.
In announcing its staff-monitored program, the IMF underlined that it is an informal agreement with the country's authorities that does not involve financial assistance or convey an endorsement by the IMF executive board.
"The SMP supports the Zimbabwean authorities' comprehensive adjustment and reform program and has been endorsed by Zimbabwe's cabinet, a strong signal of their commitment," the IMF said.
"A successful implementation of the SMP would be an important stepping stone toward helping Zimbabwe re-engage with the international community."
Though Zimbabwe has made considerable progress in stabilizing its economy since hyperinflation ended in 2009, a strong double-digit rebound in growth appears to have ended, slowing to about 4.5 percent in 2012, the IMF said.
Only marginally better growth of 5.0 percent is expected this year as mining output expands.
Zimbabwe's large debt burden is mostly in arrears, preventing the country from tapping external financing, and it owed the IMF $125.3 million in loan and interest payments as of May 31.
According to the Fund, Zimbabwe's entire external debt totaled $12.5 billion in 2012, a heavy 116.2 percent of gross domestic product. Nearly half, $6.7 billion, was in arrears.
"Going forward, sustaining high growth will require determined efforts at economic reform," the IMF said.
"In this regard, the SMP already envisages important reforms in public financial management, financial sector regulation, and other areas."
It outlined a program that would focus on protecting infrastructure investment and priority social spending, strengthening public financial management and improving transparency on diamond revenue.
Restructuring the central bank was also on the agenda of the program covering the period of April through December this year, the Fund said.
The IMF announcement came the same day as Zimbabwe sank into fresh political crisis, with Prime Minister Morgan Tsvangirai vowing to fight a unilateral decision by President Robert Mugabe to hold elections on July 31.
While Mugabe's move would comply with a constitutional court order to hold elections by the end of July, the date of the vote is fiercely contested.
Tsvangirai has vowed to veto any election date that comes before democratic reforms are put into place, fearing Mugabe's ZANU-PF party may once again attempt to manipulate the vote.
In 2008 Tsvangirai led Mugabe in the first round of the presidential ballot, but withdrew from the run-off amid violence that left scores of supporters dead and thousands injured.
Mugabe, 89, has ruled uninterrupted since the country's independence from Britain in 1980, despite a series of disputed and violent elections and the severe economic crash propelled by hyperinflation.