Online Reporter
NOW that Zimbabwe has achieved low single-digit annual inflation in the local ZiG currency, the country is ready to finalise a Staff Monitored Programme (SMP) with the International Monetary Fund that will largely provide investors and creditors with what amounts to a vote of confidence plus helping to fine-tune economic reforms.
Under the Second Republic, Zimbabwe embarked on a substantial basket of economic reforms, all based on a return to economic fundamentals.
This was almost entirely home-driven, the Government and the Reserve Bank of Zimbabwe working in common purpose to change the status quo.
The Ministry of Finance, Economic Development and Investment Promotion took the initial lead by demanding a return to strict budgeting and fiscal discipline, going for a highly conservative model that saw all recurrent expenditure and almost all State capital expenditure financed from revenue actually received and banked, with no creation of money, printing money in popular parlance, allowed.
Borrowing was limited to capital development that guaranteed a new flow of cash to service the short-term debts involved. Most capital spending, such as on schools, hospitals and other social spending cannot have that guarantee, since the Government wants to keep them accessible to all including the very poor, so the money had to come from taxpayers.
The second plank of the reforms involved the Reserve Bank, and here it became apparent that despite clamp downs, money supply creation, now largely from the private sector rather than the national Budget, had some curious wrinkles and crinkles, plus the lack of confidence in any local currency, which included US denominated bank deposits.
But eventually these were sorted out, one by one, and Zimbabwe finally reached the first targets.
That target was high rates of growth with very low inflation, so we not only made money as individuals and companies and the nation as a whole, but we could keep that money rather than watch it waste away with high inflation and use it to make more. This did require some return almost always in the private sector, to non-speculative budgeting and more formal business models.
Most welcomed the change although some companies, including the odd very large company, are trying to clean up the mess they created with the wrong models. The journey has not been simple, but this time reform was backed fully by the President.
The technocratic teams appointed by President Mnangagwa were made up of Zimbabweans who knew what had to be done, even if there was some short-term pain, and they were given the necessary and powerful political backing. That was critical.
So we have now reached the stage of a stable and ever-more trusted local currency, with the informal market premium on the exchange rate, which these days is generated within the banking system by matching willing buyers and sellers rather than set by State edict, down to around 15 percent and still failing.
Those who believe the “parallel rate” reflects a real market are now convinced as well that we have achieved our first goal. The second goal is now to build up our track record and lock in our reforms. We also have to sort out our large arrears in debt at global financial institutions, and some closer to home.
As we make inroads here, we must work out what sort of new access, for what sort of capital development, we can negotiate.
A second major strand of President Mnangagwa’s reform agenda has come into play, his determination to have good relations with everyone, being a friend to all and an enemy to none. That has borne fruit with the sanctions largely dissipating although the past collateral damage is still glaringly there.
Zimbabwe has been making smallish payments on these arrears, largely to acknowledge that we accept they exist and that we are willing to address them seriously. At the same time, the President set up a working group of high-reputation Africans to move the process forward.
We have now reached a stage where Zimbabwe and the IMF are ready to sign on to a Staff Monitored Programme. This is almost all local, since our reforms were the correct reforms, but the IMF can help in any fine tuning. More importantly the IMF operates as a sort of auditor, able to help us build our reputation and our track record by telling everyone else that we are largely on the right track.
When you talk to bankers, whether commercial or the global institutions that offer concessionary finance, reputation is everything. No one these days has time for dead beats.
Having the IMF stating we are doing things right, that we are not backtracking on our own development targets and policies, and that our figures are accurate, will help us build a solid reputation.
The local content of the reforms is important. Past reform programmes tended to be imposed. This one is ours and is mostly just being monitored.
While 2026 is a good year to launch the programme, with almost all economic indicators very positive, it must be noted that we can survive bad news rather well, such as still managing economic growth of 2 percent in the year when farming was hit by the worst drought in 40 years. We have inbuilt strengths.
The economy has been switching over to production models, starting with practical support for small-scale farmers to take advantage of the land reform programme, and then welcoming investment into mining and industry.
With people now making money by producing the right products at competitive prices, rather than speculating and shuffling paper, we are seeing high rates of real and long term growth, and that is what is moving us forward.
