IMF says its staff monitored programme in Zimbabwe is now off track

The International Monetary Fund today said its staff monitored programme in Zimbabwe, adopted in May last year, is now off track.

In a statement, the IMF said that Zimbabwe is facing an economic and humanitarian crisis exacerbated by policy missteps and climate‑related shocks.

It said the country now needed difficult policy choices and urged authorities to make a concerted effort to ensure economic and social stability through the adoption of coordinated fiscal, monetary and foreign exchange policies, alongside with efforts to address food insecurity and serious governance challenges.

The IMF Zimbabwe needs to establish credibility in the new currency which has been rapidly losing its value.

It urged the Zimbabwe government to press forward with the establishment of a functional foreign exchange market and to remove distortions that could lead to rent‑seeking behavior in the economy.

Given low reserves and hyper‑inflation, limited credibility, and a lack of access to traditional forms of external financing, Zimbabwe needed a monetary targeting regime to conduct monetary policy.

It also needed to enhance central bank independence and transparency and timely publication of monetary statistics.

Full statement:

IMF Executive Board Concludes 2020 Article IV Consultation with Zimbabwe

February 26, 2020

On February 24, 2020, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Zimbabwe.

Zimbabwe is experiencing an economic and humanitarian crisis. Macroeconomic stability remains a challenge: the economy contracted sharply in 2019, amplified by climate shocks that have crippled agriculture and electricity generation; the newly introduced ZWL$ has lost most of its value; inflation is very high; and international reserves are very low. The climate shocks have magnified the social impacts of the fiscal retrenchment, leaving more than half of the population food insecure. With another poor harvest expected, growth in 2020 is projected at near zero, with food shortages continuing.

The government that came to office following the 2018 elections adopted an agenda focused on macro stabilization and reforms. This was supported by a Staff Monitored Program from the IMF, adopted in May 2019, but is now off-track as policy implementation has been mixed. Notable reforms include a significant fiscal consolidation that has helped reduce the monetary financing of the deficit, the introduction of the new domestic currency in February 2019, the creation of an interbank FX market, and the restructuring of the command agriculture financing model to a public-private partnership with commercial banks. However, uneven implementation of reforms, notably delays and missteps in FX and monetary reforms, have failed to restore confidence in the new currency.

Reengagement with the international community continues to face delays. The Zimbabwean government has yet to define the modalities and financing to clear arrears to the World Bank and other multilateral institutions, and to undertake reforms that would facilitate resolution of arrears with bilateral creditors. This continues to constrain Zimbabwe’s access to external official support. As a result, the authorities face a difficult balance of pursuing tight monetary policy to reduce very high inflation and prudent fiscal policy to address the macroeconomic imbalances and build confidence in the currency, while averting a crisis. While the 2020 budget includes a significant increase in social spending, it is likely insufficient to meet the pressing social needs. Absent a scaling up of donor support, the risks of a deep humanitarian crisis are high.

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