IMF SDRs to boost production, forex reserves

NEW YORK (Reuters) - Newly appointed Zimbabwean Finance Minister Mthuli Ncube would like to employ a “big bang” economic reform program to the battered economy where unemployment is running above 80 percent, but recognises politics will limit the speed for change. Reserve Bank of Zimbabwe Governor John Mangudya and Zimbabwe's Finance Minister Mthuli Ncube brief reporters during an investment conference in New York, U.S., September 21, 2018. REUTERS/Daniel Bases

THE US$961 million Special Drawing Right (SDRs) that Zimbabwe received from the International Monetary Fund (IMF) yesterday will help boost the productive sectors of the economy while bolstering the country’s foreign currency reserves.

In a joint statement yesterday, Finance and Economic Development Minister Professor Mthuli Ncube and Reserve Bank of Zimbabwe Governor Dr John Mangudya confirmed that Zimbabwe had now received 677 million SDRs (US$961 million) under the IMF’s US$650 billion SDR allocation to cushion members from the negative impact of Covid-19.

The duo made it clear that Zimbabwe was going to use the windfall responsibly, carefully and productively.

Both have forecast the domestic economy will grow this year by a weighty 7,8 percent after two years of successive decline, driven by a stellar agricultural season, massive construction projects and global mineral price boom.

The funds were deposited in the Reserve Bank of Zimbabwe account with the IMF for value 23 August 2021. 

The immediate impact of this support from the IMF is to increase the foreign exchange reserves position of the country by US$961 million. 

“This will go a long way in buttressing the stability of our domestic currency,” said Prof Ncube and Dr Mangudya.

They said the funds would be prudently deployed, with utmost accountability, to support social sectors of health, education, and vulnerable groups, plus the productive sectors that include industry, mining, tourism and infrastructure, mainly roads and housing.

Additionally, the fiscal and monetary authorities said the funds will shore up Zimbabwe’s foreign currency reserves, resourcing a contingency fund as well as reinforcing economic stability.

SDRs are the IMF’s account unit and as a currency, Dr Mangudya said, are easily convertible to the currency of choice. 

He stressed that at any given time, there are investors looking to buy SDRs. 

Dr Mangudya told The Herald yesterday that the SDRs will significantly boost Zimbabwe’s foreign currency reserves, providing a buffer that enables the country to fund key economic and social programmes.

“Look at the IMF SDRs like any other currency, which if you want to use the money, for instance the British pound, you simply convert into the currency of choice at the ruling exchange rate,” Dr Mangudya said. 

Availability of reserves, said Dr Mangudya, would have a significant positive impact on confidence in the economy and the domestic currency.

However, Dr Mangudya said while the IMF intervention will boost national reserves, local banks were already sitting on a lot more, about US$1,7 billion in foreign currency accounts, which authorities want to support key productive sectors.

“These IMF SDRs will not substitute our policies of managing the economy, but will complement rather than substitute our policies,” said Dr Mangudya.

It has been noted that as some of the money will be used on programmes normally funded in local currency, Zimbabwe will automatically get a double benefit of the additional funds plus the foreign currency available to importers who need and are allowed to buy it. Some of the money is being earmarked for boosting revolving funds, which will see the same money being continually reused.

Pan African Chamber of Commerce board member Mr Langton Mabhanga told The Herald yesterday that the almost US$1 billion SDR fund has come at “an opportune moment” when the country is on a firm footing, stable, and a solid economy, a clear Vision 2030, a well-directed National Development Strategy 1.

“The economy is focusing on import substitution and 70 percent of basic commodities are locally manufactured and there are clear growth targets of 7,8 percent,” said Mr Mabhanga. 

“So it only points to the stark reality that the near US$1 billion fund will only accelerate the already moving economy. The trajectory that the economy has taken can only be hastened now. Agriculture has blossomed, with the harvest alone, expected to be about three million tonnes, so the fund cannot have come at a better time. 

“The US$12 billion mining economy is also taking shape, so there you are, we think that the fund will only continue to give another spring momentum to economy and enhance the attainment of the 7,8 percent growth is now more photographic, it is coming.” 

Economist Mr Persistence Gwanyanya said: “The SDR allocation is a game-changer to Zimbabwe. The allocation comes at a time when we, as Zimbabwe, have gotten all the basics of stabilising our currency and thus, will go a long way in sustaining currency stability. 

“More importantly, the SDR allocation comes at a time when there is now demonstrable fiscal and monetary responsibility from our economic leaders. The Minister of Finance and RBZ Governor have already indicated that there is need to support infrastructure development as well as social goods for the country.”

However, another economist Mr Eddie Cross said the fund would do “very little”.

“The funds are very limited in relation to our needs,” he said.

IMF managing director Ms Kristalina Georgieva said the allocation was a significant shot in the arm for the world and, if used wisely, provides a unique opportunity to combat a potential Covid-19-related unprecedented crisis.- Herald