Decisive action needed to lock-in Zimbabwe economic gains

Dhaneshwar Ghura

THE International Monetary Fund (IMF) has said decisive actions are needed to lock-in Zimbabwe’s economic stabilisation gains and accelerate reforms.

This comes after Zimbabwe’s economy contracted cumulatively by about 11 percent during 2019-20 owing to the combined effects of Covid-19, Cyclone Idai, a protracted drought, and weakened policy buffers.

The IMF’s recommendations follow preliminary findings of the lender’s staff’s recently concluded  Article IV Mission to Zimbabwe held virtually from October 25-November 16, 2021.

(IMF) staff team leader Dhaneshwar Ghura said the near-term macroeconomic imperative for Zimbabwe was to continue with the close co-ordination among fiscal, exchange rate and monetary policies.

“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.

“These reforms are paramount for improving the business climate and reducing governance vulnerabilities, and thus to foster higher sustained and inclusive growth,” he said.

Ghura noted that the authorities’ strategy and policies as embodied in the 2021-25 National Development Strategy 1 (NDS1) were appropriate and needed to be fully operationalised and implemented.

The NDS1 is a successor programme to the National Transitional Stabilisation Programme (TSP) and is aimed at sustaining a positive high economic growth of 5 percent per annum and maintaining fiscal deficits averaging not more than 3 percent of Gross Domestic Product (GDP).

The IMF added that durable macroeconomic stability and structural reforms would support the economic recovery and Zimbabwe’s development objectives.

Of late, the economic stability has seemingly been threatened by rising inflation, soaring prices as well as the widening-gap between the US dollar and Zim dollar rate.

 The multilateral lender said reforms were paramount for improving the business climate and reducing governance vulnerabilities to foster higher sustained and inclusive growth.

Ghura highlighted the Special Drawing Rights (SDR) allocation should not substitute for critical reforms, “but must be spent on priority areas within a medium-term plan, and follow good governance and transparency practices.”

The Zimbabwean government received its allocation of SDR from the IMF amounting to an equivalent of US$961 million.

Finance Minister Mthuli Ncube said Zimbabwe would use more than half of the $961 million allocated by the IMF in the form of special drawing rights to support the beleaguered currency.

The government abandoned a 1:1 peg between a precursor of the reintroduced Zimbabwe dollar and the greenback in February 2019. The currency now trades at 97,82 to the U.S. dollar and even lower on the black market.

Meanwhile, Ghura acknowledged that the authorities’ swift response to the Covid-19 pandemic, including through containment measures and support to vulnerable households and firms, helped mitigate its adverse impact.

 Economic activity strongly backed to recover in 2021, the mission chief for Zimbabwe said, with real GDP expected to grow by about 6 percent, reflecting a bumper agricultural output, increased mining and energy production, buoyant construction and manufacturing activity, and increased infrastructure investment.

 “Uncertainty remains high, however, and the outlook will depend on the pandemic’s evolution—compounded by the economy’s vulnerabilities to climatic shocks—and implementation of sustainable policies.

 “The IMF mission notes 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 RBZ auction exchange rate, are policy measures in the right direction,” he added.

 IMF is precluded from providing financial support to Zimbabwe due to an unsustainable debt and official external arrears. The southern African nation has been a Fund member in good standing since it cleared its outstanding arrears to the PRGT in late 2016.

IMF staff team led Ghura, Mission Chief for Zimbabwe, held discussions with Minister of Finance and Economic Development Professor Mthuli Ncube, his Permanent Secretary George Guvamatanga, Reserve Bank of Zimbabwe Governor Dr John Mangudya, other senior government and RBZ officials, members of Parliament, representatives of the private sector and civil society and Zimbabwe’s development partners through virtual meetings in the context of the 2021 Article IV consultation from October 25 to November 16, 2021. – Herald

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