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Harambe: IMF implores Zimbabwe to pace up forex reforms | The Herald (10/27/23)
The International Monetary Fund (IMF) says Zimbabwe should accelerate foreign exchange market reforms by allowing more flexibility in the official exchange rate through market-driven price discovery.
It also called for the removal of exchange rate restrictions for banks, authorised dealers, and businesses, and for further minimisation of export surrender requirements after a staff visit in Harare between October 18 and 25, 2023 to discuss recent economic developments and outlook in the country.
Although the IMF mission acknowledges the authorities’ recent efforts to stabilise the foreign exchange market and reduce inflation by tightening Zimbabwe dollar liquidity conditions, the parallel forex market premium remains high at over 30 percent.
The Zimbabwe dollar closed at 5,6934 against the United States dollar at the last auction yesterday.
“Key economic policy reforms identified in previous Article IV consultations remain paramount to fully restore macroeconomic stability,” said the IMF mission.
To mitigate liquidity pressures and re-anchor inflation expectations, it said it is imperative to comprehensively address the Reserve Bank of Zimbabwe’s quasi-fiscal operations (QFOs). These measures should be complemented with an enhanced liquidity management framework, including the use of appropriate interest-bearing instruments by the RBZ to mop up excess liquidity, the IMF mission says.
The consolidated fiscal stance, including QFOs, should be aligned with short-term stabilization objectives.
“Structural reforms aimed at improving the business climate and reducing governance vulnerabilities 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 1 (2021-2025),” it added.
Sustainable development will also require resolving the debt overhang. The IMF said it would continue to provide policy advice and extensive technical assistance in revenue mobilization, expenditure control, financial supervision, debt management, economic governance, and macroeconomic statistics. However, the IMF is precluded from providing financial support to Zimbabwe due to unsustainable debt—based on the IMF’s Debt Sustainability Analysis and external arrears.
An IMF financial arrangement will require a clear path to a comprehensive restructuring of Zimbabwe’s external debt, including clearing arrears, and a reform plan that aligns with durably restoring macroeconomic stability, enhancing inclusive growth, lowering poverty, and strengthening economic governance.
International re-engagement remains critical for debt resolution and access to financial support.
The authorities’ re-engagement efforts through the Structured Dialogue Platform are vital for attaining debt sustainability and gaining access to external financing, it says.
It notes that Zimbabwe’s economy has continued its post-COVID recovery, but enhancing its longer-term growth potential would require strong reform efforts. Real gross domestic product is projected to grow by around 4,8 percent in 2023, supported by strong activity in the mining sector and—reflecting the beneficial impact of structural reforms—in agriculture and energy sectors.
Growth is expected to slow to 3,5 percent in 2024 due to weaker global demand for minerals and a weather-related slowdown in agriculture.
“The outcome of this staff visit will serve as a key input in the preparations for a Staff Monitored Program (SMP) and the next Article IV consultation,” says IMF.
The IMF mission held meetings with Minister of Finance, Economic Development and Investment Promotion Professor Mthuli Ncube, his Permanent Secretary Mr. George Guvamatanga, Reserve Bank of Zimbabwe Governor Dr John Mangudya, the Deputy Chief Secretary to the President and Cabinet Mr Willard Manungo, other senior Government officials.
https://www.herald.co.zw/imf-implores-zim-to-pace-up-forex-reforms/
