IMF praises Zim’s monetary policy moves

While Zimbabwe has cleared whatever it owes to the International Monetary Fund (IMF), the global lender says the country’s high debt levels and arrears with other institutions prevents it from providing it with more loans.

"The fund provides extensive technical assistance in the areas of economic governance and financial sector reforms, as well as macroeconomic statistics. The IMF is, however, precluded from providing financial support to Zimbabwe due to unsustainable debt and official external arrears," the organisation said on Monday after a week-long visit to the nation.

"A fund financial arrangement would require a clear path to comprehensive restructuring of Zimbabwe’s external debt, including the clearance of arrears; a reform plan that is consistent with macroeconomic stability, growth and poverty reduction; a reinforcement of the social safety net; and governance and transparency reforms."

The IMF kept the country’s growth outlook this year at 3.5%, but praised the policy interventions of the last few months by authorities, saying this helped stop the currency’s free-fall.

"The recent tightening of monetary policy and the contained budget deficits are policies in the right direction and have contributed to the narrowing of the parallel market exchange rate gap.”

The economic growth forecast this year half the 7% recorded in 2021, due to a slowdown in agricultural and energy outputs owing to erratic rains and rising macroeconomic instability, the IMF said. Zimbabwe’s Treasury has a higher growth outlook of 4.6%.

President Emmerson Mnangagwa has led the charge since 7 May to support the embattled Zimbabwean dollar, which was being sidelined by businesses and individuals in favour of the U.S. greenback through a raft of measures. The measures have included a temporary ban on bank lending, introduction of an interbank rate at which most commerce can take place and central bank hiking the key interest rates to 200% - currently the world’s highest.

The IMF said authorities in the near-term are faced with curbing inflationary pressures by further tightening monetary policy, as needed. Consumer prices in August rose 285% from a year earlier, spurring a depreciation of the Zimbabwean currency against the U.S. dollar of more than 80% -- making it Africa’s worst performing currency this year.

The fund recommended that authorities allow greater exchange rate flexibility through a more transparent and market-driven price discovery process, tackling foreign-exchange market distortions and eliminating exchange restrictions.