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Zim must use IMF money productively: Zimcodd

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ZIMBABWE should use the money it expects to receive from the International Monetary Fund (IMF) to procure Covid-19 resources and finance the recovery of the informal sector, economic justice campaigners have said.

DUMISANI NYONI
The country is expected to get €800 million in Special Drawing Rights (SDRs), which is about US$1.1 billion, from the IMF.

SDRs are a reserve asset, an accounting unit for IMF transactions with its member countries and a stable asset in countries’ international reserves. They supplement a country’s reserves by making use of the collective strength of the international financial institution’s membership.

SDRs are not tangible money. Countries can exchange their SDRs in return for foreign currency with other IMF members. It is important to note that SDR allocations do not add to a member country’s public debt burden.

SDRs were created in 1969 for purposes of providing financial options and alleviation in a crisis.

The savings can be withdrawn when urgently needed, for instance during  pandemics or natural disasters.

The SDRs are allocated based on the financial strength of member states. Richer countries are allocated more SDRs than those allocated to developing and/or poor countries.

Countries in a stronger financial standing can, on a voluntary basis, agree to assist other countries when the need arises.

In its latest report, the Zimbabwe Coalition on Debt and Development (Zimcodd) said the allocation is necessary for the country’s economic recovery and, as such, it recommended that the resources be used to ensure the improved socio-economic status of all Zimbabweans.

“With its external debt estimated at US$8.2 billion, SDRs for Zimbabwe are the most ideal as they are not debt induced and have low interest rates,” Zimcodd said.

“In addition, the SDR allocation will allow Zimbabwe to reduce its reliance on more expensive domestic or external debt for building reserves.

“Emphasis, however, should be placed on transparency and accountability in the management of the SDR allocation and, most importantly, in ensuring that the allocations are put to good use – for purposes of alleviating a crisis, in this case, procurement of Covid-19 resources and securing recovery for the informal sector as the most affected,” it said.

In its April report, IH Securities (IH) said should the SDRs be successfully issued, Zimbabwe would potentially receive US$1.2bn, boosting local foreign currency reserves, and this would further stabilise the local currency.

“These reserves could also be used to repay external debts and fund productive sectors of the economy.
“Countries that convert their SDRs into hard currency do not have to pay back that hard currency by any specific deadline; they just have to pay any interest owed to the IMF. Interest rates on SDRs are significantly lower,” it said.

In addition, IH said the “cash injection” does not necessarily come with the prerequisite for immediate reforms; reforms can take place at a gradual pace.

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