Online Reporter
ZIMBABWE’s improving economic performance, low inflation, stability of exchange rates and many other reforms have been given the thumbs-up by the International Monetary Fund in its first review of the 10-month Staff Monitored Programme.
This programme is not the IMF dictating to Zimbabwe, or something that was imposed.
Rather, it is far more like an audit of what Zimbabwe was already doing and is continuing to do, and the favourable review can be thought of as a clean audit report.
Almost all the targets met and benchmarks set, from low inflation and a decent local currency upwards, are after all what most Zimbabweans want and demand.
This is important as Zimbabwe establishes its track record under the home-grown reforms initiated by the Second Republic that have moved the country from relative stagnation to one of the faster-growing economies in the world, and even more importantly to consistent economic growth. Even in a bad drought year our economy kept growing, admittedly at a slower rate, showing the underlying strength of the reforms.
Having a favourable IMF review report is important as we move towards the next major stages, of debt restructuring and arrears clearance. Those whom we owe money are far more likely to be willing to work out a realistic payment plan, which will involve a significant element of debt restructuring, when they know the IMF has delved deeply and approved the reforms. This is the way the world works, that independent audits are considered essential.
Under the Staff Monitoring Programme, the IMF does not lend money, but works with a member country to assess progress on fiscal, monetary, structural and governance issues and helping to set realistic and achievable targets and set the appropriate benchmarks.
The strict financial and monetary conservatism of the Zimbabwean authorities is highlighted by the one missed target of not spending enough on protecting vulnerable groups, a curious criticism by a body like the IMF.
This was not a big miss as the Government does budget and spend on this item. More obviously the review of the Staff Monitored Programme was dealing with a period of decent harvests and no sudden emergencies. So the higher spending seen in the aftermath of a cyclone, the 2023-2024 drought and even the returning citizens from South Africa was not repeated. But we only spend when we need to. The IMF did note that there could be needs from a probable El-Nino event, but did not seem to think we could not handle that or the effects of conflict in the Middle East.
The very strict monetary policy of the Reserve Bank of Zimbabwe was applauded, as bringing down annual inflation to single digits, in fact quite low single digits. The policy of building up gold and foreign currency reserves was seen as crucial as was the zero quasi-fiscal operations of using the bank to help fund Government.
Of course, the Reserve Bank has been able to implement its programmes thanks to strong and co-ordinated Government backing, with the Finance Ministry which handles the tax-and-spend side operating in parallel with the Reserve Bank, which handles the currency and reserves, and thus ensures the low inflation and stable exchange rates. Those reserves are built up with the Government allocating half of all mining royalties and agreeing to a slice of export earnings topping up the tax.
The IMF noted the growing structural reform and the greater emphasis on good governance. Again these are local policies, with recent examples of the pressure for good governance coming from the determination by Government and Parliament for all in the State sector to take the Auditor General very seriously, including the practical measures of breathing down the necks of those who do not.
The IMF noted the positive current account, meaning foreign currency inflows exceed outflows. The review comes at the same time as the half yearly statistics of Zimbabwe’s export earnings which reveal why the current account is respectable.
Mining exports reached more than US$5,6 billion in the six months, US$3,1 billion from gold and US$2,5 billion from the rest of the minerals. Manufactured exports are rising and efforts to improve the local processing of tobacco, plus new stress on horticulture exports, should see agriculture making a decent contribution.
But what is probably helping drive growth and allowing ever more market liberalisation of foreign currency, a policy supported by the IMF incidentally, is the fact that foreign currency inflows are now dominated by what we earn through exports. A few years ago around a third of our foreign currency came from diaspora remittances, with the higher aid levels to NGOs in those days taking the total of the “non-earned” inflows to almost half.
Now, even though diaspora remittances are a little larger, they form less than 15 percent of the inflows, some very nice cream on the top of the export earnings and increasingly seen as a source of investment rather than buying imports. But most of our inflows are now earned money, the product of the efforts, paid efforts, of a lot of Zimbabweans digging up and processing minerals, growing and processing crops and making things in factories.
This has allowed the reforms so strongly approved by the IMF, has allowed the Reserve Bank to move from emergency operations to managing a respectable foreign currency policy using the banking system, with a much diminished parallel market, and creating and maintaining a decent local currency.
