dyton mupawaenda
Business Reporter
THE International Monetary Fund (IMF) has applauded Zimbabwe’s tight monetary policy stance, which has seen inflation and exchange rate stability since April this year, and projected a strong economic rebound in 2025, anchored by improved agriculture performance and ongoing capital projects in the manufacturing sector.
After the second IMF’s mission to Harare from June 18 to 27, 2024, the mission, headed by Mr Wojciech Maliszewski, said the ZiG official exchange rate had remained largely stable since its launch, ending a period of macroeconomic instability in the first quarter, during which the Zimbabwe dollar currency lost about 260 percent of its value.
As such, the IMF projected cumulative inflation for 2024 at around 7 percent, assuming continued macroeconomic stability, which aligns closely with the Reserve Bank of Zimbabwe’s (RBZ) projection of 5 percent.
Launched in April this year to stabilise the exchange rate and rein in inflation, the domestic currency backed by precious metals, mainly gold and foreign currency reserves, has maintained a near original peg value to the US dollar after starting at 13,56 and rising marginally to the current 13,70.
Zimbabwe’s consumer prices have also remained relatively stable with a month-on-month ZiG inflation rate for June coming in at 0 percent, meaning prices have remained constant on average between May and June.
The central bank pledged strict adherence to monetary policy discipline, committing to only release money into circulation if it is backed by the value of physical gold, precious minerals, or foreign exchange reserves to preserve the value of the domestic currency.
Following the World Bank certification, the ZiG now has its own international code, ZWG.
“The mission welcomes improvement in monetary policy discipline and recommends further refinements to the policy framework,” said the IMF mission.
“Price stability would be best achieved by stabilising the ZiG nominal exchange rate against a suitable basket of currencies (accounting for the dominant role of the US dollar in the economy).”
To achieve this, the IMF has recommended controlling base money growth through unremunerated Non-Negotiable Certificates of Deposits (NNCDs) in the short term and eventually transitioning to indirect, interest-rate-based instruments to make the new currency more attractive.
It also recommended that to enhance the information guiding monetary policy decisions, a more developed foreign exchange market was critical. This would necessitate identifying and eliminating remaining obstacles that hinder the forex market’s function in facilitating price discovery.
However, the IMF mission has noted a significant funding gap in the 2024 budget due to high debt service costs, lower-than-projected revenue, and drought-related expenses.
“The financing gap would need to be closed in a way that does not undermine the monetary policy stance.
“The mission is encouraged that the work to identify such measures is ongoing and stands ready to provide support to the authorities as needed,” said the IMF. The IMF also noted that despite facing challenges, Zimbabwe’s economy showed continued resilience.
While growth is expected to slow to around 2 percent in 2024 compared to 5,3 percent in 2023 due to drought and rising import costs, a strong rebound to 6 percent is projected for 2025, propelled by agricultural recovery and ongoing manufacturing investments.
Strengthening the governance framework for the Mutapa Investment Fund would be key for stabilisation efforts, said the IMF, adding that steps should be taken to ensure the fund’s mandate was clearly defined and aligned with the National Development Strategy, enhancing its transparency and ensuring its full integration into the budget and adhering to the highest standards of corporate accountability.
The mission also discussed structural reforms aimed at improving the business climate, strengthening economic governance and reducing corruption vulnerabilities.
“Zimbabwe’s economic governance has significant weaknesses and corruption poses risks to macroeconomic performance. Addressing these weaknesses remains key for promoting sustained and inclusive growth,” the IMF noted.
It also noted that the ongoing international re-engagement was critical for debt resolution and arrears clearance, which would open the door for access to external financing.
As such, the authorities’ re-engagement efforts, through the Structured Dialogue Platform, were key to attaining debt sustainability and gaining access to concessional financial support.
“In this context, the mission encourages the authorities to continue adhering to high standards of public debt transparency, including through the inclusion and appropriate treatment of recently issued debt in its public and publicly-guaranteed debt statistics.”
The IMF staff held meetings with the Minister of Finance, Economic Development and Investment Promotion, the RBZ, Office of the President and Cabinet, Members of Parliament and representatives of the private sector, civil society and development partners.
Online Reporter