IMF says the premium on the back market at 30% is too high- outlines 3 key reforms

The International Monetary Fund has welcomed measures by the Zimbabwe government to stabilise the local currency but it said the parallel market premium at over 30% is still too high.

It said this in a statement following a week-long staff visit to Harare from 18-25 October.The staff team was led by Wojchiech Maliszewski.

The team projected that Zimbabwe’s economy will grow by 4.8% this year but will decline to 3.5% next year.

The IMF identified three key reforms needed to restore macroeconomic stability:

1. First, comprehensively addressing the RBZ’s quasi- fiscal operations (QFOs) remains imperative to mitigate liquidity pressures and thus re-anchor inflation expectations. These measures should be complemented with an enhanced liquidity management framework, including through the use of appropriate interest-bearing instruments by the RBZ to mop up excess liquidity. 
2. Second, the consolidated fiscal stance, including QFOs, should be aligned with the short-term stabilisation objectives.
3. Third, there is an urgent need to accelerate the FX market reform, by allowing more flexibility in the official exchange rate through a more transparent and market-driven price discovery; removing the restrictions on the exchange rate at which banks, authorised dealers, and businesses can transact; and further minimising export surrender requirements.

Below is the full statement issued by the IMF team:

“Zimbabwe’s economy has continued its post-COVID recovery, but enhancing its longer-term growth potential would require strong reform efforts. Real GDP is projected to grow by around 4.8 percent in 2023, supported by strong activity in the mining sector and—reflecting the beneficial impact of structural reforms—in agriculture and energy sectors. Growth is expected to slow to 3.5 percent in 2024 due to weaker global demand for minerals and a weather- related slowdown in agriculture. As external conditions worsen, the economic outlook will even more crucially depend on progress toward macroeconomic stabilization and transformational structural reforms. Local-currency (ZWL) inflation and exchange rate pressures have abated in recent months, following significant price increases and exchange rate depreciation in the second quarter of 2023. The IMF mission notes the authorities’ recent efforts into stabilizing the foreign exchange market and lowering inflation through the tightening of ZWL liquidity conditions. The mission welcomes the removal of surrender requirements on domestic sales in FX. The announced plan for the transfer of RBZ FX liabilities to the Treasury is also welcome. Nevertheless, the parallel FX market premium is large at above 30 percent, and ZWL inflation remains high. The fiscal deficit, excluding QFOs, is projected at 2.3 percent of GDP in 2023.

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