INTERNAL devaluation is the only option for Zimbabwe to regain its competitiveness, the International Monetary Fund (IMF) has said.
IMF resident representative Christian Beddies told businessdigest on Wednesday in Harare that the country should pursue internal devaluation by way of reducing costs, prices and enhance productivity and add to benefits of the macro-economic stability brought about by the multi-currency regime.
“Confidence and macro-economic stability, which is what the multi-currency regime has achieved, remain key. This rules out a return to a national currency at this point in time. At this time, internal devaluation (reducing costs, prices, enhance productivity, etc) is the only option to regain competitiveness,” Beddies said.
Zimbabwe is ranked 125th out of 140 countries in the 2015/2016 Global Competitiveness Index (GCI) report compiled by the World Economic Forum.
While the most serious barriers to doing business in Zimbabwe over the past three years include access to finance, which remains country’s biggest problem, followed by policy instability and restrictive labour regulations, the overvalued exchange is also a serious issue.
With a 45% overvalued exchange rate, the GCI report says Zimbabwe is going to find it very difficult to accelerate economic growth especially given the make-up of its export portfolio at a time of depressed commodity prices.
Beddies said the amendment of labour laws was a major step toward reducing labour market rigidities that had stifled economic activity and raised Zimbabwe’s labour costs above other countries in the region and contributed to hurting competitiveness.
He said the implementation of the authorities’ arrears clearance strategy by Zimbabwe would go a long way in reintegrating Zimbabwe into the world’s financial system, help the country access lower-cost financing and attract much-needed investment, both domestically and foreign.
“Zimbabwe’s re-engagement with the international community is one of the major areas of the policy reform agenda of the Staff-Monitored Programme (SMP) and we are pleased with the progress so far. Between now and then, the government, with the help of its partners, will draft a bold medium-term reform programme that, after arrears clearance, could be supported by a Fund financial arrangement. Of course, unlike the SMP, which is approved by our management, a Fund financial arrangement needs approval from the IMF executive board,” he said.
As at December 2013, Zimbabwe’s total external debt amounted to US$8,915 billion.
Zimbabwe’s outstanding public and publicly-guaranteed external debt, (including the Reserve Bank’s external debt), stood at US$6,964 billion as at end December 2013 representing 54% of Gross Domestic Product in nominal terms.
Total multilateral debt stood at US$2,58 billion (37%), of which arrears amounted to US$2,12 billion (82%) end of 2013.
Zimbabwe’s arrears to the multilaterals mainly owed to the World Bank (US$1 billion), African Development Bank (AfDB) (US$612 million), European Investment Bank (EIB) US$280 million and InMF (US$121 million).