IMF warns Zim | Business Times

CLOUDINE MATOLA/LIVINGSTONE MARUFU

 

The International Monetary Fund (IMF) yesterday cautioned the Government of Zimbabwe to focus on strengthening economic governance, reduce the risk of corruption and improve the business climate in order  to promote  steady and equitable growth, Business Times can report.

The Bretton Woods institution also suggested that the government should speed up reforms  to the foreign exchange market by removing existing exchange restrictions and distortions and pushing for a more transparent and market-driven official exchange rate.

The warning was given yesterday by Wojciech Maliszewski, the head of the IMF staff team that was in Harare from January 31 to February 14 on a Staff Monitored Program (SMP) mission.

This comes at a time when the government recently exempted  21 public entities from scrutiny in procurement and disposal of assets.

RBZ, AFC Commercial Bank, Infrastructure Development Bank of Zimbabwe, TelOne and Kuvimba Mining House, are among the exempted firms listed in General Notice 164B of 2024.

“Structural reforms aimed at improving the business climate, strengthening economic governance and reducing  corruption vulnerability are key  for promoting sustained and inclusive growth and would bode well for supporting  Zimbabwe’s development objectives embodied in the country’s National Development Strategy (2021-2025). In this context, the  mission encourages the authorities to ensure that  the corporate governance arrangement, transparency and financial reporting  and accountability oversight of the recently established Mutapa Fund are in line with international  standards and good practices,” Maliszewski said.

“The fundamental issue about Zimbabwe is building confidence and building that confidence includes economic and political moves, stability, integrity,  ethics  and  dealing with corruption. 

He added: “We are (also) concerned by exchange-rate distortions as this affects future growth.

“The mission encourages the authorities to accelerate the foreign currency (FX) market reform by promoting a more transparent and market driven price discovery in the official exchange rate and by removing existing exchange restrictions and distortions. In particular the restriction on the 10% allowable trading margin for pricing domestic transactions should be eliminated.

“The FX market reform should be accompanied by establishing an effective framework for exchange rate and monetary policies.”

Maliszewski continued, saying that such a framework necessitates meticulous planning, which includes thoroughly addressing the root causes of the fiscal difficulties; as a result, the Reserve Bank of Zimbabwe (RBZ) Act should be amended, with a focus on limiting its legal authority to  core functions.

“…local-currency instability intensified,” Maliszewski said, adding that the official exchange rate has depreciated by about 95% since the beginning of December 2023. The gap to the parallel market rate remains wide [above 30%]; and the Zimbabwe dollar inflation is still very high. “This instability weighs on sentiment, while exchange rate restrictions [prescribing retailers to use the official Zimbabwe dollar exchange rate with up to a 10% margin inflating US dollar prices] continue to be a burden on the formal sector.

“They promote informality, which erodes the tax base and undermines longer-term growth prospects. “Risks remain skewed to the downside, and the outlook will crucially depend on progress toward macroeconomic stabilisation and transformational structural reforms.”

Maliszewski added that resolving the debt overhang is necessary for sustainable development. “Sustainable development will also require the resolution of the debt overhang. International re-engagement remains critical for debt resolution and access to financial support. In this context, the authorities’ re-engagement efforts, through the Structured Dialogue Platform, are key for attaining debt sustainability and gaining access to concessional external financing,” he said.

The IMF continues to have an active relationship with Zimbabwe and offers broad technical assistance as well as policy recommendations in the areas of macroeconomic statistics, financial supervision, debt management, revenue mobilisation, expenditure control, and economic governance and anti-corruption. But because of Zimbabwe’s declared external arrears and unsustainable debt status as determined by the IMF’s Debt Sustainability Analysis [DSA] the IMF is presently unable to offer Zimbabwe any financial support.

“An IMF 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 macroeconomic stability; enhancing inclusive growth; lowering poverty; and strengthening economic governance,” Maliszewski said.

Reacting to IMF concerns, Finance, Economic Development and Investment Promotion Minister Mthuli Ncube said: “We agreed on that. But also we agreed that as we seek this quest for stability, we must continue with the measures that we’ve put in place for the government to live within its means, for the government to manage its borrowings, which we can afford to pay for our borrowings in order to borrow more, things like that,” Prof Ncube said.

He added: “There’s a lot that we’ve agreed on. But also, we’ve agreed that our exchange rate must be more reflective of the market conditions

“We must move any impediments that can come in the way of a fairly determined exchange rate, one that again is in tune with the notion of stability going forward.”

Professor Ncube added that maintaining exchange rate stability is essential to fostering resilient growth.

“That will ensure price stability and therefore growth sustainability going forward and more equitable growth, more inclusive growth,” Professor Ncube said.

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