Zimbabwe to  get US$1bn from the IMF for free

Can the US block funds to sanctioned countries, like Zimbabwe?

Unlike the IMF’s lending programme, the general SDR allocation is not subject to a US veto. All IMF members, including countries such as Zimbabwe that are under US sanctions, will receive their share of the allocation.

However, the US will not purchase SDRs from countries it disapproves of. It may also influence other countries to do the same.

“Because all IMF members receive an SDR allocation proportionate to their quota share, some countries whose policies the United States opposes will receive an SDR allocation. However, these countries will not necessarily be able to exchange their SDRs for hard currencies. First, the country’s authorities must be recognised by the IMF membership. Then, the country would need to find a willing country to provide them with hard currency in exchange for their SDRs.  We are working to increase transparency around SDR exchanges,” the US Treasury said last month.

“The United States retains the right to refuse to purchase SDRs from any countries that we choose, including those under US sanction regimes, and we are working to coordinate with other countries to do the same.”

Impact on Zimbabwe

The nearly US$1 billion allocation will be a significant injection of liquidity into Zimbabwe’s forex-starved economy. The cash is the equivalent to about 5% of the country’s GDP and 20% of its 2021 budget.

Reserve Bank of Zimbabwe governor John Mangudya says he expects the IMF funds to help stabilise the country’s currency and, by extension, the economy.

Zimbabwe’s currency, reintroduced in 2019, has enjoyed a year of stability after a tumultuous spell that greeted its return. This has been largely credited to a foreign currency auction system introduced in June 2020.

Between June 2020 and April 2021, nearly US$1.2 billion has been traded through the auctions. The injection of a similar amount into the economy, through the IMF allocation, can only help improve availability of forex.

President Emmerson Mnangagwa’s government has also prioritised infrastructural development, after decades of under-funding and neglect left the country’s roads, and power plants in a poor state.

Some of the IMF cash is expected to find its way into infrastructure projects.

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