IMF says Zimbabwe needs to contain fiscal spending and tighten monetary policy

The International Monetary Fund today said Zimbabwe will this year experience a “steeply negative” growth and therefore needs to contain fiscal spending and tighten monetary policy to stabilise the exchange rate.

In a statement following a visit by an IMF mission led by Gene Leon which was in the country from 5-19 September, the IMF said policy actions were urgently needed to tackle the root causes of economic instability and enable private-sector led growth.

“The key challenge is to contain fiscal spending consistent with non-inflationary financing and tighten monetary policy to stabilize the exchange rate and start rebuilding confidence in the national currency,” the statement said.

“Risks to budget execution are high as demands for further public sector wage increases, quasi-fiscal activities of the RBZ that will need to be absorbed by the central government, and pressure to finance agriculture could push the deficit back into an unsustainable stance.

“There is also a need to strengthen FX market operations and improve transparency on monetary statistics. These adjustment challenges are magnified by slow progress on international reengagement. Efforts will need to be intensified on both economic and political fronts to drive Zimbabwe forward.”

Finance Minister Mthuli Ncube has repeatedly said the country is operating at a budget surplus. He has, however, refused to give in to wage demands by civil servants insisting that any salary adjustments have to be within the government’s means.

The country’s government doctors are on strike demanding a 400 percent salary increase. The government offered only a 60 percent increase which they rejected.

The exchange rate has, however, been in turmoil with the rate between the Zimbabwe dollar and the greenback falling from 1:1 in February to 30:1 last week before the government froze accounts of four companies that were accused to fuelling the black market.

Sadly, the companies are owned by close associates and relatives of President Emmerson Mnangagwa.

The central bank yesterday froze the accounts of five more companies with Mthuli Ncube promising to close all loopholes that unscrupulous dealers can use to manipulate the exchange rate.

Below is the full IMF statement:

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