IMF implores Zimbabwe to pace up forex reforms

The International Monetary Fund (IMF) has recommended that Zimbabwe expedite its foreign exchange market reforms by introducing more flexibility into the official exchange rate through market-driven price determination. Additionally, the IMF has called for the removal of exchange rate constraints for banks, authorized dealers, and businesses, and further reductions in export surrender requirements. These recommendations come following a staff visit to Harare from October 18 to 25, 2023, where discussions were held regarding recent economic developments in Zimbabwe.

While the IMF acknowledges recent efforts by the authorities to stabilize the foreign exchange market and combat inflation by tightening Zimbabwe's dollar liquidity conditions, it points out that the parallel forex market premium remains high, exceeding 30 percent. The Zimbabwe dollar was reported to have closed at 5,693.4 against the US dollar at the most recent auction.

The IMF mission emphasized the importance of key economic policy reforms identified in previous Article IV consultations for restoring macroeconomic stability. To address liquidity pressures and re-anchor inflation expectations, it is crucial to comprehensively address the quasi-fiscal operations (QFOs) of the Reserve Bank of Zimbabwe. These measures should be complemented by an enhanced liquidity management framework, including the use of interest-bearing instruments by the RBZ to absorb excess liquidity.

The IMF suggests that the consolidated fiscal stance, including QFOs, should align with short-term stabilization objectives. Structural reforms aimed at improving the business environment and reducing governance vulnerabilities are essential for promoting sustained and inclusive growth, aligning with Zimbabwe's National Development Strategy 1 (2021-2025).

Resolving the debt overhang is also crucial for sustainable development. The IMF will continue to offer policy advice and technical assistance in various areas, including revenue mobilization, expenditure control, financial supervision, debt management, economic governance, and macroeconomic statistics. However, the IMF is unable to provide financial support to Zimbabwe due to unsustainable debt, based on its Debt Sustainability Analysis and external arrears.

For an IMF financial arrangement to be considered, Zimbabwe would need to provide a clear path for a comprehensive restructuring of its external debt, including clearing arrears, and develop a reform plan that aligns with the restoration of macroeconomic stability, inclusive growth, poverty reduction, and economic governance enhancement.

International re-engagement is essential for debt resolution and access to financial support. The IMF notes that the authorities' re-engagement efforts through the Structured Dialogue Platform are vital for achieving debt sustainability and gaining access to external financing.

The IMF also acknowledges that Zimbabwe's economy has continued its post-COVID recovery, but it highlights that achieving its long-term growth potential would require significant reform efforts. Real GDP is expected to grow by approximately 4.8 percent in 2023, supported by robust activity in the mining sector, and structural reforms in agriculture and energy sectors. However, growth is projected to slow to 3.5 percent in 2024 due to weaker global demand for minerals and weather-related disruptions in agriculture.

The outcome of this staff visit will be a key input in preparing for a Staff Monitored Program (SMP) and the next Article IV consultation, as per the IMF. The IMF mission conducted meetings with various senior government officials, including the Minister of Finance, Economic Development, and Investment Promotion, the Permanent Secretary of Finance, the Governor of the Reserve Bank of Zimbabwe, and others.