The IMF team was led by Dhaneshwar Ghura, mission chief for Zimbabwe.

THE International Monetary Fund (IMF) has urged the Zimbabwe government to consolidate economic gains made in the past few months by accelerating monetary reforms, especially allowing exchange rate flexibility, to tame the parallel market and inflation.

The Southern African country is enjoying relative economic stability, thanks in part to stringent monetary policies and increased production in agriculture and mining.

In a statement published Tuesday after its staff’s latest mission to Zimbabwe, the Bretton Woods institution said it was happy with the authorities’ significant efforts to stem inflationary pressures.

“In this regard, contained budget deficits and reserve money growth, higher monetary policy rates, and more flexibility in the Reserve Bank of Zimbabwe’s (RBZ) auction exchange rate, are policy measures in the right direction,” the IMF staff team led by Dhaneshwar Ghura, mission chief for Zimbabwe, said after the latest routine consultations.

“Decisive actions are needed to lock in economic stabilisation gains and accelerate reforms. The near-term macroeconomic imperative is to continue with the close coordination among fiscal, exchange rate, and monetary policies.”

The IMF said reforms are paramount for improving the business climate and reducing governance vulnerabilities, fostering higher sustained and inclusive growth.

“In this context, key priorities relate to allowing greater official exchange rate flexibility and tackling FX market distortions, accompanied by an appropriate monetary stance; creating fiscal space for critical spending while containing fiscal deficits; implementing growth-enhancing structural and governance reforms; and continuing to enhance data transparency,” the Bretton Woods institution said.

The global lender said that durable macroeconomic stability and structural reforms would support the recovery and Zimbabwe’s development objectives.
The IMF however, cautioned that uncertainty remains high, adding that the outlook will depend on the Covid-19 pandemic’s evolution — compounded by the economy’s vulnerabilities to climatic shocks — and implementation of sustainable policies.

“Economic activity is recovering in 2021, with real GDP expected to grow by about six percent, reflecting a bumper agricultural output, increased mining and energy production, buoyant construction and manufacturing activity, and increased infrastructure investment,” IMF said.
This comes after Zimbabwe’s economy contracted by about 11 percent during 2019-20, owing to the combined effects of the pandemic, Cyclone Idai, a protracted drought, and weakened policy buffers.

On the Special Drawing Rights (SDRs) allocation, the lender said Zimbabwe should not see the US$961 million windfall as a substitute for reforms.
“In this context, the use of the SDR allocation should not substitute for critical reforms, but should be spent on priority areas within a medium-term plan, and follow good governance and transparency practices,” IMF said.

The institution said it engages the authorities in close policy dialogue and provides extensive technical assistance in the areas of economic governance, fiscal policy and revenue administration, financial sector reforms, as well as macroeconomic statistics.

“However, the IMF is precluded from providing financial support to Zimbabwe due to an unsustainable debt and official external arrears.
“A Fund financial arrangement would require a clear path to comprehensive restructuring of Zimbabwe’s external debt, including the clearance of arrears and obtaining financing assurances from creditors; a reform plan that is consistent with macroeconomic stability, sustainable growth, and poverty reduction; a reinforcement of the social safety net; and governance and transparency reforms,” IMF said.

It said the authorities have developed an arrears clearance, debt relief and restructuring strategy and have resumed token payments on external arrears. The team held discussions with Finance minister Mthuli Ncube, his permanent secretary George Guvamatanga and RBZ governor John Mangudya. Other senior government and RBZ officials, members of Parliament, representatives of the private sector and civil society and Zimbabwe’s development partners were also part of the virtual meetings. – Fingaz