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Zimbabwe has introduced gold coins into the market. Pic credit: Aaron Ufumeli


IMF demands key reforms, a stop to quasi-fiscal exploits, gold coins removal



THE International Monetary Fund (IMF) has demanded that the Zimbabwean government introduce more economic reforms, stop quasi-fiscal activities and phase out gold coins designed to provide a store of value alternative in the market, while mopping up excess liquidity to contain exchange rate volatility and inflation.


 In its latest statement on Zimbabwe after its recent visit to Harare, the IMF also demanded fiscal policy measures and structural reforms to ensure macro-economic stability and economic recovery. Said the IMF: “A near-term policy imperative is to sustainably anchor macro-economic stability.

 In this context, Fund staff recommend accelerating the liberalisation of the FX [foreign exchange] market, including through the removal of restrictions on the exchange rate at which banks, authorised dealers, and businesses transact; addressing the Reserve Bank of Zimbabwe’s quasi-fiscal operations to mitigate liquidity pressures; maintaining an appropriately tight monetary policy stance to durably restore macro-economic stability and ensure social stability; restoring the effectiveness of monetary policy, including through the use of appropriate interest-bearing instruments to mop up liquidity and winding down the use of gold coins; and maintaining a prudent fiscal stance.”

An IMF staff team led by Dhaneshwar Ghura was in Harare from 1-15 December prior to its 2023 Article IV Consultation mission.

 At the conclusion of the visit, Ghura said: “The government provided a swift response to the Covid-19 pandemic, supporting businesses, livelihoods, and the health sector, resulting in real output growth of 8.5% in 2021, underscoring the economy’s resilience. Renewed domestic and external shocks (inflation surge, erratic rainfall, electricity shortages, and Russia’s war in Ukraine) are, however, adversely affecting economic and social conditions.

“Real Gross Domestic Product (GDP) growth is thus expected to decline to about 3.5% in 2022. These multiple shocks will continue to weigh on Zimbabwe’s growth prospects. Currency and price pressures, which emerged earlier this year largely owing to a spike in broad money growth and an official exchange rate misaligned with market fundamentals, are subsiding.”

 The IMF said the government’s tight fiscal and monetary policy measures have slowed down macro-economic deterioration.

 “Annual inflation, which had increased to 285% in August, has been decelerating since, a trend which if sustained by appropriate policies, would go a long way in anchoring inflation expectations,” it said.

“The IMF mission notes the authorities’ efforts to stabilise the local foreign exchange market and lower inflation. In this regard, the swift tightening of monetary policy along with greater official exchange rate flexibility and a prudent fiscal stance are policies in the right direction and have contributed to a narrowing of the premia in the parallel foreign exchange market.

“In addition, the authorities have identified large payments to suppliers, the result of over-invoicing, as a source of pressures on the parallel market and in response have launched value-for-money audits and introduced measures to strengthen procurement regulations. Uncertainty remains high, however, and the economic outlook will depend on the implementation of key policies and the evolution of external shocks.

“Fiscal policy should aim at containing the deficit in line with available non-inflationary financing and creating fiscal space for critical spending. This can be achieved by mobilising additional revenues, based on tax policy reforms, and by scaling back non-priority outlays, while strengthening public finance management.”

The IMF added: “The financial oversight of the state-owned enterprise (SOEs) by the Treasury should be further strengthened in order to minimise fiscal risks. In the context of a tight monetary policy, enhanced regulatory oversight is required to ensure financial sector resilience. Addressing the remaining Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) weaknesses would strengthen banks’ resilience and effectiveness. Reforms to economic institutions and the governance and anti-corruption frameworks are critical for strengthening the foundations for private sector development and inclusive growth.

 “Ensuring durable macro-economic stability and revitalising structural reforms would support Zimbabwe’s development objectives as embodied in the country’s National Development Strategy 1 (2021-2025).” The IMF also raised the issue of Zimbabwe’s international isolation and the need for re-engagement to resolve the country’s debt crisis.

“International re-engagement remains critical for debt resolution and access to external financial support. In a bid to advance the re-engagement process, the authorities have adopted an Arrears Clearance, Debt Relief and Restructuring strategy; continued token payments to external creditors; and launched a Dialogue Platform to foster discussions among the various stakeholders,” it said.

“Zimbabwe has been a Fund member in good standing since it cleared its outstanding arrears to the IMF in late 2016. The Fund provides extensive technical assistance in the areas of revenue mobilisation, expenditure control, monetary and exchange rate policy, banking sector, debt management, governance, and macro-economic statistics,” it said.

Even though Zimbabwe has paid the IMF its US$110 million in arrears, it still owes the World Bank US$1.5 billion and African Development Bank US$700 million.

This leaves the IMF “precluded from providing financial support to Zimbabwe due to official external arrears and unsustainable debt”.

“A Fund financial arrangement would require a clear path to comprehensive restructuring of Zimbabwe’s external debt, including the clearance of arrears; and a reform plan that is consistent with durably restoring macro-economic stability, enhancing inclusive growth, lowering poverty, and strengthening economic governance,” it said.

 The IMF staff held meetings with Finance minister Mthuli Ncube, his permanent secretary George Guvamatanga, Reserve Bank of Zimbabwe governor John Mangudya, Deputy Chief Secretary to the President and Cabinet Willard Manungo, other senior government and RBZ officials, representatives of the private sector, civil society, and Zimbabwe’s development partners.

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