IMF urges Zimbabwe to expedite currency reforms

The International Monetary Fund (IMF) after the completion of staff mission to Zimbabwe, has urged the country to expedite currency reforms, saying the government should shift to a market-driven exchange rate and eliminate existing distortions, Reuters reported on Wednesday.

As part of Zimbabwe’s efforts to re-engage with the international financial community by showcasing a history of sound economic policies, the visit covered the country’s request for an IMF staff-monitored programme.

For more than 20 years, Zimbabwe has been unable to obtain funding from global financial institutions like the IMF because of unpaid debts to the World Bank, African Development Bank (AfDB), and European Investment Bank (EIB).

“The IMF is currently precluded from providing financial support to Zimbabwe due to its unsustainable debt situation … and official external arrears,” the IMF said in a statement.

“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.”

The finance ministry and central bank of Zimbabwe have stated that they are developing strategies to stabilise the value of the Zimbabwean dollar, which has dropped by nearly 40 per cent compared to the U.S. dollar since the year’s beginning.

An option under consideration is to correlate the exchange rate with assets like gold.

According to the IMF, policymakers should limit the central bank’s legal authority to core operations and do away with a restriction on the 10 per cent permitted trading margin for pricing domestic transactions.

Finance Minister of Zimbabwe Mthuli Ncube stated in a joint press conference with the IMF that officials felt the local currency should better represent the state of the market.

After ten years of dollarisation, the Zimbabwean dollar was reintroduced in 2019, but it quickly lost value and the use of foreign currencies in domestic transactions was soon authorized again.

Stabilising the exchange rate will be the main goal of the next monetary policy statement, according to Central Bank Governor John Mangudya.