ZIMBABWEAN authorities — running on empty for decades now and reeling from ballooning debt — are waiting with bated breath for 23 August to receive their US$1.1 billion from International Monetary Fund (IMF).
BERNARD MPOFU/BRIDGET MANANAVIRE
The funds will be disbursed under the new US$650 billion bailout for the global economy ravaged by the Covid-19 pandemic.
A timely lifeline, the rescue package — the biggest Special Drawing Rights (SDR) bailout in history — is a big deal for Harare.
Immediately and directly, President Emmerson Mnangagwa’s government will now have more than US$1 billion in its empty coffers in two weeks’ time.
However, there are grave concerns of transparency and accountability on how the money will be used given Zimbabwe’s shambolic public finance management system and record, as shown by the Auditor-General’s reports financial years on end.
The IMF board of governors approved the general allocation of SDRs equivalent to US$650 billion (about SDR456 billion) on 2 August 2021 to boost global liquidity.
Of that amount, Zimbabwe will get SDR800 million, about US$1.1 billion.
The exchange rate between the SDR and United States dollar is USDR1:US$1.426560 as of yesterday. The value of the SDR is based on a basket of five currencies — the US dollar, the euro, the Chinese renminbi, the Japanese
yen, and the British pound sterling.
The general allocation of SDRs will become effective on 23 August. The newly created SDRs will be credited to IMF member countries in proportion to their existing quotas in the fund.
Why it matters
The bailout is critical for the global economy’s stabilisation and recovery from the ravages of Covid-19, but more crucially as it is needed even more in countries like Zimbabwe that desperately require liquidity, financial stability and reserves.
Reasons why the rescue package matters for Zimbabwe:
- A shot in the arm — a lifeline for the economy;
- Funds immediately and directly coming soon;
- Debt-free liquidity with no negative side effects;
- It will boost liquidity and reserves simultaneously (without enough reserves and import cover — the number of months of imports that could be covered for by a country’s international reserves — the country is exposed and vulnerable. Import cover is an important indicator of the stability of a currency);
- Restores foreign exchange market stability and confidence;
- SDRs can easily be converted to hard currency anytime, so they provide a buffer and increase confidence in the ability of the country to meet its future obligations;
- Channelled to industry to resuscitate production capacity;
- Support exporters to boost production and bring in forex;
- Be directed towards social service delivery and safety nets; and
- Free up needed resources to help fight the Covid-19 pandemic.
IMF Managing Director Kristalina Georgieva (pictured) said soon after approval: “This is a historic decision — the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis. The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy.
It will particularly help our most vulnerable countries struggling to cope with the impact of the Covid-19 crisis,” In Georgieva’s words prior to approval: “If approved, a new allocation of SDRs would add a substantial, direct liquidity boost to countries, without adding to debt burdens. It would also free up badly needed resources for member countries to help fight the pandemic, including to support vaccination programmes and other urgent measures.
And it would complement the range of tools deployed by the IMF to support our membership in this time of crisis.”
US-based International Trade Union Confederation economist and policy adviser Lara Merling said during the process developing countries like Zimbabwe need the money “now” and not “later”.
This, compared to developed nations which sometimes do not even utilise the SDRs as happened in 2009 when a US$250 billion bailout was released in the aftermath of the global financial crisis in 2008.
“Wealthy countries are already issuers or have ample access to ‘hard’ currencies, such as U.S. dollars, needed to pay for imports and transactions in global financial markets,” Merling wrote for the Initiative for Policy Dialogue.
“On the other hand, developing countries usually need to acquire these currencies through exports, or by attracting foreign investments into their countries. Without enough foreign reserves to cover their external obligations, developing countries face significant pressures on their own domestic currencies, and are at risk of balance-of payments crises that, coupled with the damage from the pandemic, could crush their economies for years to come.
“Even without using SDRs, having them available to exchange for a hard currency if they need to provides a buffer for developing countries and increases confidence in their ability to meet future obligations. Confidence matters too, since sudden large outflows of capital caused by the fear or uncertainty over the future state of the economy can itself
become the trigger for a collapse.”
About US$275 billion of the new allocation will go to emerging markets and developing countries, including low income countries like Zimbabwe.
“We will also continue to engage actively with our membership to identify viable options for voluntary channelling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth,” Georgieva said.
One key option is for members that have strong external positions to voluntarily channel part of their SDRs to scale up lending for lowincome countries through the IMF’s Poverty Reduction and Growth Trust (PRGT).
Concessional support through the PRGT is currently interest free. The IMF is also exploring other options to help poorer and more vulnerable countries in their recovery efforts. A new Resilience and Sustainability Trust could be considered to facilitate more resilient and sustainable growth in the medium term, she said.
What local analysts say
Confederation of Zimbabwe Industries president Henry Ruzvidzo said: “The SDR funds have the potential to significantly accelerate progress of the economy. If used in sustainable high-impact areas, the economy’s growth can be accelerated. Zimbabwe has been affected by the pandemic with some sectors suffering serious damage which will require funding support for a turn around. The country has not had access to international Covid-19 development assistance as have other countries these funds are therefore a very welcome and timely development.”
Chris Mugaga, Zimbabwe National Chamber of Commerce chief executive, said: “There is nothing unusual about Zimbabwe receiving SDRs. SDRs are like a claim to currency which can be exchanged. It’s the allocation and management of the funds which should be a priority. They should be able to stabilise the foreign exchange market.
But as ZNCC, we feel they will not change the economy much.”
Applied economics lecturer at the National University of Science and Technology Stevenson Dhlamini noted: “SDRs are not the best tool for financing economic programmes and government expenditure under normal circumstances, but in this case Zimbabwe stands to benefit by acquiring vaccines that will enable the country to attain beyond 60% head immunity target. The head immunity will help resuscitation of critical sectors such as tourism which have taken a serious hit from the Covid-19-related lockdown regulations.”
Former Finance minister Tendai said although US$1 billion is not a lot of money to fund an economy, it would make a difference if wisely utilised — which is unlikely.
“It’s not a lot of money from an economic point of view even for a small economy like Zimbabwe, but if used wisely it could make a difference,” he said.
“But sadly we know that its impact would be minimal because it won’t be put to good use. The level of rent-seeking, corruption and looting in this regime is frightening. So that money will largely be misappropriated, wasted or stolen.
“However, if they were wise they would put that money into infrastructure, into road and rail networks, dams, bridges, and housing and university accommodation; key areas, high impact, high-value projects that are critical to
economic recovery.”
