IMF calls on Zimbabwe to accelerate foreign currency market reform

The International Monetary Fund has called on Zimbabwe to accelerate foreign currency 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 a statement issued today following a two-week mission by an IMF team led by Wojciech Maliszewski, the IMF said the restriction on the 10% allowable trading margin for pricing domestic transactions should be eliminated. 

It said the 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,” the statement said.

President Emmerson Mnangagwa last week said that the country would address the country’s local currency woes through a “structured currency” which Finance Minister Mthuli Ncube said would be backed by hard assets like gold.

The government is going to spell out the new measures when the Reserve Bank of Zimbabwe governor releases his monetary policy statement which is already overdue.

Full statement:

An International Monetary Fund (IMF) staff team led by Mr. Wojciech Maliszewski visited Harare on January 31-February 14, 2024, to discuss the authorities’ request for a Staff Monitored Program (SMP) and commence 2024 Article IV Consultation.

At the conclusion of the IMF mission, Mr. Maliszewski issued the following statement:

“Economic activity in Zimbabwe continues to show resilience in the face of currency instability and high inflation. GDP growth is estimated at 5.3 percent in 2023, on the back of an expansion in agriculture and mining, and—buoyed by related foreign currency inflows and by remittances—in the highly-dollarized domestic trade and services. Growth is expected to decelerate to about 3¼ percent in 2024, partly reflecting the impact of a drought on agriculture production and lower commodity prices. These factors are also expected to reduce foreign currency inflows, but remittances will likely remain strong, and the current account is projected to be in small surplus. This should support liquidity in the dollarized part of the economy, sustaining growth in domestic trade, services, and construction. However, local-currency (ZWL) instability intensified: the official exchange rate has depreciated by about 95 percent since the beginning of December 2023; the gap to the parallel market rate remains wide (above 30 percent); and ZWL inflation is still very high. This instability weighs on sentiment, while exchange rate restrictions (prescribing retailers to use the official ZWL exchange rate with up to a 10 percent margin—inflating US dollar prices) continue to be a burden on the formal sector. They promote informality, which erodes the tax base and undermines longer-term growth prospects. Risks remain skewed to the downside, and the outlook will crucially depend on progress toward macroeconomic stabilization and transformational structural reforms.

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