IMF calls on Zimbabwe to accelerate foreign currency market reform

“The authorities have requested a new Staff Monitored Program (SMP) to support their stabilization efforts and reengagement with the international community through building a track record of sound economic policies. The mission was a step in the preparations for an SMP and initiated Article IV consultations. Discussions covered policies to restore macroeconomic stability and improve growth prospects, focusing on addressing the sources of fiscal pressures including quasi-fiscal operations (QFOs) of the Reserve Bank of Zimbabwe (RBZ); liberalizing the foreign exchange market and establishing an effective framework for exchange rate and monetary policies; and progressing on reforms to improve economic governance and reduce corruption vulnerabilities.

“The mission welcomes the authorities’ strong resolve to address the sources of fiscal pressures. The transfer of RBZ’s external liabilities related to the QFOs to the Treasury—which include long-term loans, short-term liabilities, and the “blocked funds”—represents an important step in this regard. However, the larger-than-anticipated costs of servicing these obligations will open a financing gap in the 2024 budget. Discussions focused on identifying options to close this gap in a way that avoids inflationary financing, and the mission encourages the authorities to develop and implement a comprehensive plan to this end. This should be accompanied by ensuring that the appropriate legal framework is in place to complete the transfer. Restoring macroeconomic stability will also require addressing other sources of fiscal pressures, including those emanating from other non-core (not related to the goal of price and financial stability) operations of the RBZ and from SOEs.

“The mission encourages the authorities to accelerate the 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 percent 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. Establishing such a framework requires careful preparations, including, among other steps, comprehensively addressing underlying sources of fiscal pressures. The RBZ Act should be amended, including to narrow its legal mandate to core functions.

“Structural reforms aimed at improving the business climate, strengthening economic governance and reducing corruption 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). 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.

“Sustainable development will also require the resolution of the debt overhang. International reengagement remains critical for debt resolution and access to financial support. In this context, the authorities’ reengagement efforts, through the Structured Dialogue Platform, are key for attaining debt sustainability and gaining access to concessional external financing.

“The IMF maintains an active engagement with Zimbabwe and continues to provide policy advice and extensive technical assistance in the areas of revenue mobilization, expenditure control, financial supervision, debt management, economic governance and anti-corruption, and macroeconomic statistics. However, the IMF is currently precluded from providing financial support to Zimbabwe due to its unsustainable debt situation—based on the IMF’s Debt Sustainability Analysis (DSA)—and official external arrears. 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.

“The IMF staff held meetings with Minister of Finance and Economic Development Hon. Professor Mthuli Ncube, the Deputy Minister of Finance and Economic Development Hon. David Mnangagwa, the Reserve Bank of Zimbabwe Governor Dr. John Mangudya, other senior government and RBZ officials, the private sector, civil society organizations, and Zimbabwe’s development partners.

“The IMF staff wishes to thank the Zimbabwean authorities and other stakeholders for the constructive discussions and support during the 2024 Article IV consultation mission.”

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