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IMF presses govt on currency reforms

KUDZAI KUWAZA
THE International Monetary Fund (IMF) has called on the Zimbabwe government to implement outstanding structural reforms, including the removal of exchange rate restrictions.

The recommendations by the Bretton Woods institute is coming at a time the country is in the throes of an economic crisis characterised by currency distortions, high inflation and increased poverty.

In its 2022 Article lV Consultation report availed yesterday, the IMF executive board said reforms will foster the international re-engagement process.

“Noting that substantial challenges remain, including extreme poverty and longstanding structural constraints, they urged the authorities to implement the necessary reforms that would foster higher, more inclusive growth and pave the way for re-engagement with the international community,” the IMF said in its report.

It recommended further monetary policy tightening given the persistently high inflation and emphasised the need to increase the operational independence of the central bank as well discontinue quasi fiscal operations.

The IMF also called for a more transparent exchange rate mechanism.

“Concerted efforts are needed towards greater exchange rate flexibility by allowing a more transparent and market-driven economy and authorities to phase out exchange restrictions and multiple currency practices as soon as conditions permit.”

The IMF urged the government to advance reforms adding that a new Staff-Monitored Programme (SMP) could “establish a track record of sound policies and add further impetus to their re-engagement efforts”.

The previous SMP between the government and the IMF failed after President Emmerson Mnangagwa’s administration failed to meet the set targets.

President Emmerson Mnangagwa

It also urged for a fiscal policy that aims to restore macro-economic stability and create fiscal space for priority spending.

“They emphasised the need to enhance revenue, including through broadening the tax base and improving tax administration and compliance,” the report noted.

The IMF advocated for accelerated reform of state-owned enterprises and enhancing financial controls, which will be critical in limiting fiscal risks.

It further suggested a transparent use of the Special Drawing Rights received from the IMF. Zimbabwe received nearly US$1 billion in SDR.

The IMF noted that real GDP rose by 6,3 % in 2021 on the back of a bumper harvest, a strong pickup in mining and buoyant construction.

However, it projected that there will be slower growth of 3,5% this year and 3% over the medium-term in line with the country’s growth potential.

Zimbabwe, the IMF noted, remains in debt distress with large external arrears to official creditors but welcomed government efforts to re-engage with creditors with token payments and preparation of a debt resolution strategy.

The IMF commended the government for its swift response to the Covid-19 pandemic, and the significant progress towards macro-economic stability, but noted that implementation of IMF policy advice has been inconsistent.

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