IMF welcomes Mthuli Ncube's monetary reforms

The International Monetary Fund (IMF) says the latest reforms announced by both the Ministry of Finance and Economic Development through SI 142 of 2019 and the Reserve Bank of Zimbabwe through exchange control directive RU102/2019, are welcome as they seek to address economic distortions that have impaired macroeconomic stability.

Last week, Government introduced a raft of changes that saw the country finally abandoning the multicurrency regime that had been in place since 2009.

Through SI 142 of 2019, Government outlawed the use of any foreign currency in local transactions, but still allowed the buying and selling of foreign currency on a willing buyer-willing seller basis.

"The Zimbabwe dollar shall, with effect from June 24, 2019 be the sole legal tender in Zimbabwe in all transactions," reads SI 142.

"The British pound, United States dollar, South African rand, Botswana pula and any other foreign currency whatsoever shall no longer be legal tender alongside the Zimbabwe dollar in any transactions in Zimbabwe."

Commenting on the changes, Minister of Finance and Economic Development Professor Mthuli Ncube said: "What was happening in the market was that the market was self-US-dollarising; it was uncontrollable and we felt that we needed to bring the situation under control.

"Quite clearly it became an untenable situation and it became necessary for Government to move a lot faster and introduce a mono currency regime in favour of a domestic currency. This marks the end of the multi-currency," he said.

The latest measures, the IMF says, are welcome. "We welcome the reforms announced in the February 20 Monetary Policy Statement and June 24 press release, which seek to address economic distortions that have impaired macroeconomic stability," IMF representative to Zimbabwe, Mr Patrick Imam told Business Weekly in an interview.

As part of monetary policy measures, the RBZ adjusted the interest rate on the Reserve Bank overnight window upwards from 15 percent per annum to 50 percent per annum in line with inflation trends. It also removed administrative limits on the operation of bureaux de change and on the cap on margins for banks for interbank foreign exchange transactions.

To increase supply of foreign currency into interbank foreign market the RBZ said it will ensure that at least 50 percent of the surrender portion of foreign currency is sold to the interbank market.

Such moves were supported by Mr Imam who said "hiking interest rates to 50 percent, removing administrative limits on the bureau de change and relaxing the surrender requirements in a bid to stabilise the exchange rate are welcomed". Mr Imam, however, said more needed to be done.

"We encourage the authorities to continue ongoing efforts to implement a coherent monetary policy framework to pursue policies that preserve financial stability and ensure the orderly operation of payment systems and stop monetary financing of fiscal deficits to stabilise inflation and the exchange rate," he said.

"As part of this effort, more transparency in monthly data statistics on the execution of the budget ,but especially on the evolution of money and credit, will be important."

Imam reiterated his earlier assertions that economic policies under the Transitional Stabilisation Programme (TSP), if fully implemented under the watch of the IMF's Staff-Monitored Programme, are comprehensive enough to deal with the country's macroeconomic imbalances.

"The economic policies of the new administration under the TSP constitute a comprehensive stabilisation and structural reform programme to address Zimbabwe's deep macroeconomic imbalances. A Staff-Monitored Programme (SMP) that can support the authorities' reform efforts has been approved by our management to cover the period May 15, 2019, to March 15, 2020," said Mr Imam.

"The economic policies under the SMP are anchored on the TSP and the SMP is expected to help the authorities establish a track record of policy implementation. In turn, this will support efforts to re-engage with the international community and move towards a comprehensive normalisation of relations with creditors."

He added that "so far in 2019, the authorities' policies appropriately focus on reducing the fiscal deficit to restore public debt sustainability, whilst protecting investment in infrastructure and priority social spending, including reconstruction and humanitarian support to respond to the drought and cyclone Idai".

"The reform programme also stopped the monetary accommodation of the fiscal deficit to stabilise inflation and the exchange rate. At the same time, the authorities are implementing foreign exchange reforms to maintain financial stability and improve the functioning of the market.