The International Monetary Fund (IMF) has approved Zimbabwe's debt clearance strategy but warned that the southern African country needs to step up economic reforms to prop up the ailing economy.

The IMF board approved Zimbabwe's plan to clear 1.8 billion U.S. dollars in arrears to the IMF, World Bank and African Development Bank, at its meeting on May 2.

In a statement issued Wednesday, the IMF said Zimbabwe's economic difficulties have deepened, aggravated by a devastating drought, tight liquidity conditions and negative inflation.

"Unless the country takes bold reforms, the economic difficulties will continue in the medium term. Given the outlook for the global economy, growth is projected to remain below levels needed to ensure sustainable development and poverty reduction," the IMF said.

The IMF has projected Zimbabwe's growth for 2016 to remain flat at 1.5 percent due to weak growth in key mining and agriculture sectors.

Weighed down by a debt of more than 7 billion US dollars, Zimbabwe has tabled plans to clear 1.8 billion dollars in arrears to the IMF, World Bank and AfBD this year to help unlock fresh funding from the multilateral institutions.

"The strategy and reform plans received broad support and once implemented, should provide positive signals to investors and creditors, and help unlock external flows to finance the authorities' development plans and private sector-led growth," the IMF said.

It added once Zimbabwe cleared its arrears to the Poverty Reduction and Growth Trust(PRGT) and other international financial institutions, the IMF looked forward to the next stage whereby Zimbabwe could be reinstated to the list of PRGT-eligible countries.

Zimbabwe remained in debt distress and needed to pursue a strong debt management strategy, step up structural reforms to raise potential growth and living standards, the IMF said.

The implementation of measures to cut the wage bill that consumes 80 percent of national budget and state enterprises reform were needed to lower employment costs, the IMF said.