IMF staff completes 2024 Article IV mission to Zimbabwe
Harare, Zimbabwe (PANA) - Despite headwinds, Zimbabwe’s economy continues showing resilience but growth is expected to decelerate to about 2 percent in 2024 (from 5.3 percent in 2023), as the country faces a devastating El Niño-induced drought.
Higher import bills are also worsening the balance-of-payments outlook. However, growth is expected to recover strongly in 2025 to about 6 percent, supported by a rebound in agriculture and ongoing capital projects in manufacturing, according to International Monetary Fund (IMF) staff.
In light of new policy developments, an (IMF) staff team led by Mr. Wojciech Maliszewski conducted a second mission to Harare from 18-27 June 2024, to conclude the 2024 Article IV Consultation.
At the conclusion of the mission, Mr. Maliszewski issued a statement observing that and drought-related spending has opened a sizeable financing gap in Zimbabwe’s 2024 budget.
He said that the financing gap would need to be closed in a way that does not undermine the monetary policy stance. The IMF mission was encouraged that the work to identify such measures is ongoing and the Fund stands ready to provide support to the authorities as needed.
Mr. Maliszewski said that the Reserve Bank of Zimbabwe (RBZ) introduced in April 2024 a new currency—the Zimbabwe Gold (ZiG) for which the official exchange rate has so far remained stable, ending a bout of macroeconomic instability in the first 3 months of the year (when the Zimbabwean dollar depreciated by about 260 percent). Assuming that macro-stabilisation is sustained, cumulative inflation in the remainder of the year is projected at about 7 percent.
“The mission welcomes improvement in monetary policy discipline and recommends further refinements to the policy framework. 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 USD in the economy).
“This could be in turn accomplished by controlling base money growth: for now through unremunerated Non-Negotiable Certificates of Deposits (NNCDs), but over time through indirect (interest-rate-based) monetary instruments to increase the attractiveness of the new currency,” Mr. Maliszewski suggested.
In the IMF mission’s view, the ZiG exchange rate should be determined in a deeper market to provide relevant information in the decision regarding the monetary policy stance, which would require identifying and removing any remaining impediments to the functioning of the FX market to promote price discovery.
“Closing the fiscal financing gap is essential to sustainably stabilise the currency. The transfer of past debt obligations related to the RBZ’s quasi-fiscal operations (QFOs) to the Treasury represented an important step to strengthen financial discipline. The mission also welcomes enhanced coordination between the RBZ and the Ministry of Finance, Economic Development and Investment Promotion (MoFEDIP) on macro-policies and liquidity management,” Mr. Maliszewski said.
However, the mission assessed that the cost of servicing the QFO-related debt and T-bills (including about 8 percent of GDP issued last year), combined with weaker-than-expected revenues (despite strong efforts to raise them through policy measures).
“Strengthened governance framework for the newly constituted Mutapa Investment Fund will be key for the stabilisation effort. Steps to this end should include ensuring that the fund’s mandate is clearly defined and aligned with the National Development Strategy; enhancing its transparency and ensuring full integration in the budget process (Mutapa’s annual operating budget, capital investment, asset sales, and borrowing plans should be subject to approval by the MoFEDIP,” Mr. Maliszewski suggested.
The IMF mission 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.
According to the mission, addressing these weaknesses remain key for promoting sustained and inclusive growth. International reengagement remains critical for debt resolution and arrears clearance, which would open the door for access to external financing.
The Zimbabwe authorities' reengagement efforts, through the Structured Dialogue Platform, are key for attaining debt sustainability and gaining access to concessional financial support.
In this context, the mission encouraged 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 maintains an 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 macroeconomic statistics,” Mr. Maliszewski said.
However, the IMF is currently precluded from providing financial support to Zimbabwe due to its unsustainable debt situation—based on the IMF’s Debt Sustainability Analysis (DSA)—and official external arrears.
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 macroeconomic stability; enhancing inclusive growth; lowering poverty; and strengthening economic governance.
-0- PANA AR/MA 28June2024
