International Monetary Fund unwilling to provide financial support to Zimbabwe
The International Monetary Fund (IMF) said it was not yet ready to provide financial support to Zimbabwe due to unsustainable debt and official external arrears.
In a statement after conducting the last Article IV consultation from October 25 to November 16, 2021, conducted virtually by a team led by Dhaneshwar Ghura, chief of mission for Zimbabwe, the IMF said: the restructuring of the Zimbabwe’s external debt, including clearance of arrears and obtaining financing assurances from creditors; a reform plan compatible with macroeconomic stability, sustainable growth and poverty reduction; strengthening the social safety net; and governance and transparency reforms. In order to reconnect with the international community, the authorities have developed a strategy for arrears clearance, debt relief and restructuring and resumed symbolic payments on external arrears.
He said IMF staff have held meetings with the Minister of Finance and Economic Development, the Hon. Professor Mthuli Ncube, his Permanent Secretary, Mr. George Guvamatanga, the Governor of the Reserve Bank of Zimbabwe, Dr. John Mangudya, other senior government and RBZ officials, Members of Parliament, industry representatives private and civil society, and Zimbabwe’s development partners.
âStaff would like to thank the Zimbabwean authorities and other stakeholders for the constructive and open discussions and support during the Article IV consultationâ¦ The authorities’ rapid response to the COVID-19 pandemic, notably through containment measures and support for vulnerable households and businesses, helped to mitigate its negative impact. Nevertheless, the pandemic has had serious consequences on the economic and humanitarian situation. “
Ghura said Zimbabwe’s economy had cumulatively contracted by around 11% in 2019-2020 due to the combined effects of the pandemic, Cyclone Idai, prolonged drought and weakening political buffers.
He said following a severe surge in June-August 2021, COVID-19 infection rates have slowed significantly, lockdown measures have been relaxed and the vaccination program continues steadily.
âEconomic activity picks up in 2021, with real GDP growth of around 6%, reflecting exceptional agricultural production, increased mining and energy production, dynamic construction and manufacturing activity and increased investment in infrastructure. Uncertainty remains high, however, and the outlook will depend on the evolution of the pandemic, exacerbated by the vulnerabilities of the economy to climate shocks, and the implementation of sustainable policies.
The IMF mission noted the significant efforts of the Zimbabwean authorities to contain inflationary pressures.
âIn this regard, contained budget deficits and reserve currency growth, higher monetary policy rates and greater flexibility in the RBZ auction exchange rate are policy steps in the right direction. Decisive action is needed to lock in economic stabilization gains and accelerate reforms.
âThe short-term macroeconomic imperative is to continue the close coordination between fiscal, exchange rate and monetary policies. In this context, the main priorities are to allow greater flexibility of official exchange rates and to combat distortions in the foreign exchange market, accompanied by an appropriate monetary stance; create fiscal space for critical spending while containing budget deficits; implement growth-friendly structural and governance reforms; and continue to improve data transparency. These reforms are essential to improve the business climate and reduce governance vulnerabilities, and thus promote more sustained and inclusive growth. To this end, the authorities’ strategy and policies as set out in their National Development Strategy 2021-25 1 are appropriate and must be fully operationalized and implemented. Sustainable macroeconomic stability and structural reforms would support Zimbabwe’s recovery and development goals.
Ghura said authorities plan to use the recent SDR allocation to support spending in the social, productive and infrastructure sectors, as well as to build up reserves. In this context, the use of the SDR allocation should not be a substitute for critical reforms, be spent in priority areas as part of a medium-term plan and follow good governance and transparency practices.
âZimbabwe has been a member in good standing of the Fund since clearing its arrears to the PRGT at the end of 2016. The Fund engages in close political dialogue with the authorities and provides extensive technical assistance in the areas of economic governance , fiscal policy and revenue administration, financial sector reforms, as well as macroeconomic statistics.