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ZIMBABWE’S ongoing international re-engagement drive remains critical for debt resolution and access to financial support, the International Monetary Fund (IMF) has noted.
It urged authorities to accelerate foreign exchange market reforms by allowing more flexibility in the official exchange rate through market-driven price discovery.
In December 2022, the Government established a structured dialogue platform with all creditors and development partners to institutionalise structured dialogue on economic and governance reforms to underpin the arrears clearance and debt resolution process.
Zimbabwe’s debt clearance process is being championed by African Development Bank president Dr Akinumwi Adesina and former Mozambican President Joaquim Chissano, who has been designated as High-Level Facilitator.
President Mnangagwa appointed Dr Adesina as a champion in July 2022.
Zimbabwe is in arrears for servicing its debt, with arrears to multilateral development banks, including the African Development Bank, the World Bank and the European Investment Bank.
In a statement at the end of its two-week Article IV Mission to Zimbabwe, IMF noted that sustainable development will require the resolution of the debt overhang. International re-engagement remains critical for debt resolution and access to financial support.
“In this context, the authorities’ re-engagement efforts, through the Structured Dialogue Platform, are key for attaining debt sustainability and gaining access to concessional external financing.
“The IMF maintains active engagement with Zimbabwe and continues to provide policy advice and extensive technical assistance in the areas of revenue mobilisation, expenditure control, financial supervision, debt management, economic governance and anti-corruption, and macro-economic statistics,” it said.
However, IMF said it is precluded from providing financial support to Zimbabwe due to unsustainable debt based on the IMF’s Debt Sustainability Analysis and external arrears.
It noted that an IMF financial arrangement would require a clear path to comprehensive restructuring of Zimbabwe’s external debt, including the clearance of arrears and a reform plan that is consistent with durably restoring macro-economic stability; enhancing inclusive growth; lowering poverty; and strengthening economic governance.
The IMF Mission added that it welcomes the authorities’ strong resolve to address the sources of fiscal pressures.
“The transfer of RBZ’s external liabilities related to the quasi-fiscal operations (QFOs) to the Treasury — which include long-term loans, short-term liabilities, and the ‘blocked funds’ — represents an important step in this regard.
“The authorities have requested a new Staff Monitored Program (SMP) to support their stabilisation efforts and re-engagement with the international community through building a track record of sound economic policies.
“The mission was a step in the preparations for an SMP and initiated Article IV consultations.”
Discussions covered policies to restore macro-economic stability and improve growth prospects, focusing on addressing the sources of fiscal pressures, including QFOs of the Reserve Bank of Zimbabwe (RBZ), liberalising the foreign exchange market and establishing an effective framework for exchange rate and monetary policies; and progressing on reforms to improve economic governance and reduce corruption vulnerabilities.
The IMF further encouraged authorities to accelerate foreign exchange (FX) market reforms by allowing more flexibility in the official exchange rate through market-driven price discovery.
The FX market reform, IMF said, should be accompanied by establishing an effective framework for exchange rate and monetary policies.
“The mission encourages the authorities to accelerate the FX market reform by promoting a more transparent and market-driven price discovery in the official exchange rate and by removing existing exchange restrictions and distortions,” it said.
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