BY CHIEDZA KOWO
RESERVE Bank of Zimbabwe (RBZ) governor John Mangudya says the US$650 billion injected into the global economy by the International Monetary Fund (IMF) this week will reignite demand on the international commodities markets and lift forex inflows from minerals.
Zimbabwe on Monday received almost US$1 billion as its share of special drawing rights (SDRs) disbursed to IMF members to stimulate growth after economies tapered under a deadly slowdown sparked by Covid-19 last year.
Authorities, battling to manage a blazing foreign currency crisis and the depreciation of the Zimbabwean dollar that pushed gross domestic product (GDP) down by 4% last year, welcomed the windfall.
Finance minister Mthuli Ncube said much of it would be channelled into rebuilding decaying infrastructure, social services and productive sectors. He said the plan was to lay out measures to defend the free falling currency, which has suffered its worst battering in the past few weeks, threatening growth and inflation targets.
But speaking during a well-subscribed Mid-term Monetary Policy Statement (MPS) review webinar organised by the Zimbabwe Independent, the biggest circulating business weekly in the country, Mangudya said an immediate robust growth in international commodities would bolster government’s generally ambitious forecasts.
He said the 6% global GDP growth expected this year would be felt in Zimbabwe as commodity markets open up to absorb the US$650 billion, and placing Harare on track to achieve 7,8% growth.
“The IMF will be releasing US$650 billion in SDR into the global economy on the 23rd next week,” the RBZ chief noted 36 hours ahead of the mega injection, the largest in the global lender’s history.
“So that increases the reserve money in the global economy and it will drive commodity prices. These ones are linked, when you put money in the economy, prices go up because prices have absorptive capacity. The stimulus package in the developed countries is stimulating demand in the world economy. Without money you don’t grow, and that is the context of the global economy. That growth which is there is also mirrored in the Zimbabwe macroeconomic situation.”
The economy had ended the first half on a positive note, with foreign currency receipts increasing by 29,1% between January and June.
In addition, the foreign currency auction system introduced last year helped companies raise US$1,7 billion for importing raw materials and equipment, averting an industrial crisis.
Gold exports are projected to rise this year following several incentives lined up by government to combat smuggling, which will further stabilise the Zimbabwean dollar.
However, so much work still remains.
The commodity price rally could bring about downside risk, with adverse implications on the import bill.
But in the Mid-term MPS, Mangudya said foreign exchange gains from improved exports will outweigh corresponding losses from the incremental energy import bill and cool off a potential threat to the beleaguered currency.
“The immediate impact of this support from the IMF is to increase the foreign exchange reserves position of the country by US$961 million,” Mangudya said in a joint statement with Ncube on Monday.
“This will go a long way in buttressing the stability of our domestic currency. The funds will be used prudently, with utmost accountability, to support the social sectors namely health, education, and vulnerable groups; productive sectors that include industry, agriculture and mining; infrastructure investment covering roads and housing; and foreign currency reserves and contingency fund, to support our domestic currency and macro-economic stability.”
Zimbabwe’s economy relapsed 21 years ago after the land reform programme that began in 2000 that saw the seizure of white-owned commercial farms.
This hammered export earnings.
Lines of credit, including from the IMF have been difficult to get due to an unsustainable debt.