The multi-lateral lender said the country’s banking system remains exposed despite restoration of the central bank’s function of lender-of-last-resort.
Official documents in the possession of the Zimbabwe Independent show that Vitaliy Kramarenko, head of the IMF team, this week made several pre-budget submissions to Finance minister Tendai Biti aimed at effectively managing the fiscus ahead of the presentation of a fiscal policy statement in parliament later this month.
The IMF team was in the country between October 25 and November 3.
“Efforts aimed at RBZ financial restructuring should be stepped up,” Kramarenko said. “The RBZ’s financial distress distracts it from focusing on core functions and continues to adversely affect financial institutions. There is an urgent need to bifurcate the balance sheet and transfer non-core assets and liabilities to a properly legislated Special Purpose Vehicle (SPV), along the lines of recent IMF TA recommendations.”
The IMF said the US$7 million channeled to restore the apex bank’s core function of protecting the banking system is insufficient to mitigate financial shocks in the financial services sector. Last week, Biti said government was ready to increase funding.
“Although the recently created US$7 million liquidity facility at the RBZ could provide strictly limited “convenience” liquidity to one or two banks, its size is clearly inadequate for the purposes of emergency liquidity assistance even to a single institution. This limitation in the use of the liquidity fund should clearly be communicated to banks,” reads the IMF document.
The central bank, according to official figures, owes nearly US$1,5 billion to its creditors. Following the use of multi-currencies last year and amendments made to the Reserve Bank Act, the bank embarked on a restructuring exercise that includes non-involvement in quasi-fiscal activities and massive job cuts.
The systemic risk to bank capitalisation from exposures to the RBZ, according to the Bretton Woods institution, is high and its containment is essential to maintaining financial stability.
The mission further advised government to limit on-budget cash expenditures saying the state could register a US$400 million surplus if it “guards against expenditure overruns” in the fourth quarter of the year. Government is this year expecting an 8,1% GDP growth buoyed by a rebound in agriculture and mining.
On taxes, the IMF team said government should in the medium term focus on broadening the tax base, a possible reduction in tax rates, and a trade tariff reform.
Government, Kramarenko said, should “further clarify” the implementation of indigenisation regulations by speeding the completion of sectoral committees tasked to advise the state on the empowerment regulations.
In March, Indigenisation and Empowerment minister Saviour Kasukuwere gazetted empowerment regulations that compel foreign-owned companies valued at US$500 000 or more to dispose of their controlling interest to black Zimbabweans over the next five years.
Faced with condemnation both within and outside government, Kasukuwere in August set up 13 sector- specific committees to review the regulations.
“Despite these recent steps, investment continues to be constrained by infrastructure bottlenecks, labour market rigidities, lack of security of land tenure, and insufficient clarity on specific details regarding ownership under the indigenisation legislation,” Kramarenko said.