March 9, 2016 / 3:40 PM / a year ago

UPDATE 1-Mugabe makes U-turn on reform as Zimbabwe tries to woo IMF

* Mugabe has previously refused IMF credit conditions

* Reforms meant to unlock IMF funds, first since 1999

* Government to cut wage bill to 52 pct of budget by 2019

* IMF says improving fiscal discipline a major priority (Adds details, quotes)

By MacDonald Dzirutwe

HARARE, March 9 (Reuters) - Zimbabwe's President Robert Mugabe agreed to major reforms including compensation for evicted white farmers and a big reduction in public sector wages as the government tries to woo back international lenders, the finance minister said.

The economy was under siege from the worst drought since 1992, Patrick Chinamasa said on Wednesday, noting that the reforms had the full backing of Mugabe, who has previously attacked the IMF for imposing stringent credit conditions.

Mugabe's government started defaulting on debts to the IMF, World Bank, African Development Bank (AfDB) and several Western lenders in 1999, leading to a freeze in financial aid.

Chinamasa told reporters at the end of a economic review by an IMF team that the government's wage bill would be cut to 52 percent of government spending by 2019 from 82 percent but did not elaborate on how this would be achieved.

The government would also target ten state-owned firms to try to make them profitable and evaluate all land seized from white farmers in a bid to compensate displaced farmers.

Chinamasa said production by black farmers who took over the previously white-owned farms was "scandalously low".

He said Harare broke bilateral investment agreements when it seized farms owned by foreigners and that this would be fixed.

Compensation would be paid out of rent from black farmers who benefited from the seizures, a ministry circular said.

Zimbabwe made world headlines in 2000 when thousands of war veterans and Mugabe's supporters started violently evicting white farmers. More than a dozen farmers were killed.

Chinamasa said Zimbabwe had drafted a new financing programme to be presented to the IMF, whose executive board will vote on Harare's plan to repay $1.8 billion in arrears on May 2.

Zimbabwe is struggling to emerge from a deep recession in the decade to 2008, which slashed its GDP by nearly half, drove hundreds of thousands abroad in search of better paying jobs and pushed formal unemployment above 85 percent.

The IMF expects the economy to grow by 1.4 percent this year from 1.1 percent in 2015 and to rise 5.6 percent in 2017.

The IMF's head of mission to Zimbabwe, Domenico Fanizza, said Harare met all its targets under a fund monitoring proramme, but improving fiscal discipline and re-engaging the international community should be a major priority.

"It will also send strong signals to the international community, reduce the perceived country risk premium and unlock affordable financing for the government and private sector," Fanizza said. (Editing by James Macharia and Louise Ireland)

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