* IMF says signs of an early recovery in Zimbabwe

* No IMF aid until Zimbabwe clears arrears

* IMF urges changes in transparency of central bank (Adds details on arrears, statement by IMF official)

By Lesley Wroughton

WASHINGTON, July 2 (Reuters) - Improved economic policies in Zimbabwe have led to a "nascent" recovery in the economy, the International Monetary Fund said on Thursday, but stressed the country must clear more than $1.1 billion in arrears to creditors before it can qualify for IMF financial aid.

Vitaliy Kramarenko, the IMF mission chief to Zimbabwe, noted the country's arrears to the IMF, World Bank and African Development Bank, adding that help from donors will be needed to pay the arrears.

IMF lending would signal an endorsement of Zimbabwe's policies and send a message of confidence to the international community, including investors and donors.

"A more liberal economic environment, price stability, a deepening in financial intermediation, and increased access to foreign credit lines underpinned a pickup in economic activity," he said in a statement after talks with authorities in the capital, Harare.

Among officials the IMF met with was Prime Minister Morgan Tsvangirai, who recently traveled to the United States and Europe to convince donors to support the new coalition government and help rebuild the country's battered economy.

Kramarenko said public finances have benefited from the recovery in economic activity and consumption, and the government matched expenditure to revenue during January-May 2009.

A sharp rise in budget revenue in recent months has made it possible for the government to increase spending, he said. In particular, spending should be increased to improve living standards of Zimbabweans and restore damaged infrastructure.

"To sustain positive economic trends and improve living standards, reform and stabilization efforts need to be stepped up," Kramarenko added.

He also urged improvements in governance at the central bank, a key demand by donors and Tsvangirai's Movement for Democratic Change (MDC) party.

Tsvangirai's part has called on Zimbabwe's central bank Governor Gideon Gono to resign for policies it says contributed to the country's economic meltdown.

Speaking in Harare, Finance Minister Tendai Biti said the economy was on course to meet the government's growth target of between 4 percent to 6 percent.

He also said changes were being made to the central bank.

"We are also cognizant of their concern over the Reserve Bank. We are amending the Reserve Bank Act and there will be major changes in terms of how the central bank is run," he added.

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