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Zim needs fresh impetus on debt reform: IMF

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THE International Monetary Fund (IMF) says Zimbabwe’s re-engagement with creditors has lost steam despite ongoing efforts by Harare to normalise relations with multilateral creditors before extricating itself from a huge debt overhang.

BERNARD MPOFU

Zimbabwe fell into arrears with the World Bank, African Development Bank and the IMF at the turn of the millennium, making the country ineligible to access cheap long-term financing for critical capital projects such as infrastructure.

A visiting IMF mission which concluded Article IV consultations on Zimbabwe also projected a modest 3.2% growth on the economy this year compared to a government estimate of 5.4% as the multilateral lender expresses concern over policy inconsistency.

“International re-engagement has lagged as stakeholders seek political and economic reforms. The 2019 Staff-Monitored Programme experienced significant policy slippages and elapsed without a review,” the IMF says.

“Directors encouraged the authorities to advance reforms, noting that a new Staff-Monitored Programme could help establish a track record of sound policies and provide further impetus to their re-engagement efforts.”

Political interference and policy reversals have often been cited as some of the reasons unnerving potential investors from injecting capital into the debt-ridden southern African nation. The IMF said while Zimbabwe has been pursuing a reform agenda in its quest to stabilise the economy and normalise relations with creditors, mixed signals on policy remained a source of worry.

“Since then, the authorities have made significant progress towards restoring macro-economic stability, though the implementation of past IMF policy advice has been mixed. The authorities have developed a debt resolution strategy and started token payments to creditors in a bid to make progress on re-engagement,” the Bretton Woods institution says.

“Directors (IMF) noted that Zimbabwe remains in debt distress, with large external arrears to official creditors. They welcomed the authorities’ commitment to re-engage with external creditors, including by resuming token payments and preparing a debt resolution strategy. Directors encouraged further efforts to enhance debt management and transparency.”

The economy is this year expected to maintain its recovery after contracting between 2019/20 due to the outbreak of the Covid-19 pandemic and droughts.

 “Directors agreed that fiscal policy should aim to restore macro-economic stability and create fiscal space for priority spending. They emphasised the need to enhance revenue mobilisation, including through broadening the tax base and improving tax administration and compliance. On the spending side, accelerating reforms of state-owned enterprises and enhancing fiscal controls will be critical to limit fiscal risks. Directors also encouraged the authorities to use the SDR (Special Drawing Rights) allocation prudently and transparently,” the report says.

“Directors recommended further monetary tightening, given the persistently high inflation. In this context, they emphasised the need to increase the operational independence of the central bank, discontinue its quasi-fiscal operations, and improve its coordination with the fiscal authorities. Concerted efforts are needed toward greater exchange rate flexibility by allowing a more transparent and market-driven price process. Directors called on the authorities to phase out exchange restrictions and multiple currency practices as soon as conditions permit.”

What is an IMF Article IV Consultation?

When a country joins the IMF, it agrees to subject its economic and financial policies to the scrutiny of the international community. It also makes a commitment to pursue policies that are conducive to orderly economic growth and reasonable price stability, to avoid manipulating exchange rates for unfair competitive advantage, and to provide the IMF with data about its economy.

Country surveillance is an ongoing process that culminates in regular (usually annual) comprehensive consultations with individual member countries, with discussions in between as needed.

The consultations are known as “Article IV consultations” because they are required by Article IV of the IMF’s articles of agreement. During an Article IV consultation, an IMF team of economists visits a country to assess economic and financial developments and discuss the country’s economic and financial policies with government and central bank officials. IMF staff missions also often meet with parliamentarians and representatives of business, labour unions and civil society.

The team reports its findings to IMF management and then presents them for discussion to the executive board, which represents all of the IMF’s member countries. A summary of the board’s views is subsequently transmitted to the country’s government. In this way, the views of the global community and the lessons of international experience are brought to bear on national policies.

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