IMF commends tightening monetary policy measures. . . says Zim economy showing resilience

Prosper Ndlovu, Business Editor

DESPITE significant shocks induced by prevailing global geo-political complications, climate change factors and internal exchange rate depreciation pressures, the International Monetary Fund (IMF) says Zimbabwe’s economy has exhibited resilience and commends the recent tightening of monetary policy measures to stabilise pricing as a step in the right direction.

This comes as the Government has moved swiftly to curtail money supply growth and taming rampant parallel market indiscipline, blamed for fueling inflation and exchange rate volatility.

Besides increasing lending rates to 200 percent, introduction of the willing buyer willing seller forex platform and adoption of the “value for money” process, the Government has managed to curb forward pricing tendencies and abuse of tender processes by public suppliers.

Economic analysts have said the measures are helping restore sanity in the market resulting in latest inflation slowdown and the recent exchange and price stability. 

In a Press statement following the conclusion of a visit to Zimbabwe on Monday by the IMF staff team led by Mr Dhaneshwar Ghura, the global finance body noted strides being made by the Government towards stabilising the macro-economic environment. 

The IMF conducted a staff visit in Harare between 12-19 September 2022 to discuss recent economic developments and the economic outlook. It held meetings with Finance and Economic Development Minister, Professor Mthuli Ncube, Permanent Secretary Mr George Guvamatanga, Reserve Bank of Zimbabwe Governor, Dr John Mangudya, other senior Government and Central Bank officials, representatives of the private sector, civil society and Zimbabwe’s development partners.

“Zimbabwe’s economy has shown resilience in the face of significant shocks,” said Mr Ghura. 

“The IMF mission notes the authorities’ efforts to stabilise the local foreign exchange market and lower inflation. 

“In this regard, the recent tightening of monetary policy and the contained budget deficits are policies in the right direction and have contributed to the narrowing of the parallel market exchange rate gap.”

The IMF team leader said the combination of the Russia-Ukraine war, poor rainfall patterns in the last season and subsequent pricing pressures were adversely affecting economic and social conditions in Zimbabwe, which has already been battered by the Covid-19 pandemic. 

These, coupled with renewed price and exchange rate depreciation pressures that emerged, notably in the second quarter of 2022, have weighed heavily on the economy, forcing the Treasury to revise downwards its initial growth Gross Domestic Product (GDP) forecast from 5,5 percent this year to 4,5 percent.

After the economy grew by about 7,8 percent in 2021, the IMF has projected a slightly lower real GDP growth of about 3,5 percent citing slowdown in agricultural and energy outputs owing to erratic rains and rising macro-economic instability, amid a recovery in mining and tourism. 

It warned that uncertainty remains high, however, with the outlook being dependent on the evolution of external shocks, the policy stance and implementation of inclusive growth-friendly policies.

“Further efforts are needed to durably anchor macro-economic stability and accelerate structural reforms. 

“In line with recommendations from the 2022 Article IV consultation, the near-term macro-economic imperative is to curb inflationary pressures by further tightening monetary policy, as needed, and allowing greater exchange rate flexibility through a more transparent and market-driven price discovery process, tackling FX market distortions, and eliminating exchange restrictions,” said the IMF. 

It further suggested that the Reserve Bank of Zimbabwe’s quasi-fiscal operations should be transferred to the budget to enhance transparency, improve the conduct of monetary and exchange rate policy, and enhance central bank independence. 

“Structural reforms aimed at improving the business climate and reducing governance vulnerabilities are key for promoting sustained and inclusive growth,” said the IMF. 

“Durable macro-economic stability and structural reforms would bode well for supporting Zimbabwe’s development objectives as embodied in the country’s National Development Strategy 1 (2021-2025).”

As stated in the 2022 Article IV consultation, the Bretton Woods institution said Zimbabwe has been a Fund member in good standing since it cleared its outstanding arrears to the IMF in late 2016. 

The Fund provides extensive technical assistance in the areas of economic governance and financial sector reforms, as well as macro-economic statistics. 

“The IMF is, however, precluded from providing financial support to Zimbabwe due to unsustainable debt and official external arrears.

“A Fund financial arrangement would require a clear path to comprehensive restructuring of Zimbabwe’s external debt, including the clearance of arrears; a reform plan that is consistent with macro-economic stability, growth and poverty reduction; a reinforcement of the social safety net; and governance and transparency reforms,” said IMF. 

It noted that Government’s international re-engagement and engagement efforts remain critical for debt resolution and access to financial support.

“The outcome of the IMF staff visit will serve as a key input in the preparations for the next Article IV consultation mission,” said IMF.

“The IMF staff wishes to express its gratitude to the Zimbabwean authorities and stakeholders for the constructive and open discussions and support during the mission.”