A long way out of the woods
The International Monetary Fund (IMF) this week gave Zimbabwe something to smile about after it said the country has made progress in stabilising the local currency.
The local currency has stabilised after taking a beating against major currencies such as the United States dollar.
In its report at the end of a virtual staff visit, the IMF noted Zimbabwe’s efforts to stabilise the local foreign exchange market and lower inflation.
“In this regard, the recent tightening of monetary policy and the contained budget deficits are policies in the right direction and have contributed to the narrowing of the parallel market exchange rate gap,” the IMF said in a report after the conclusion of a virtual staff visit.
The global lender’s remarks come as authorities seem to have stabilised the once volatile parallel market exchange rate.
The central bank has pursued a tight monetary policy that has seen the bank policy rate increased to 200% per annum from 80% to curb speculative borrowing, blamed for fuelling parallel market exchange rates.
The introduction of gold coins has also mopped excess local currency balances. Annual inflation, which reached 285% in August, is projected to rise this month before tapering off from October onwards.
Fiscal authorities have also stepped in to halt extortionist pricing by government suppliers. Such has been the extortionist tendencies among government suppliers that they were using forward parallel market rates of ZWL$2000 per dollar. Finance minister Mthuli Ncube said on Monday there were tenders awarded in which a 2kg of chicken was priced at US$30 instead of the prevailing US$6.
Ncube said the government had adopted the value for money process in which government officials who play a midwife role in inflating prices will be dealt with while suppliers will be blacklisted and excluded from future contracts.
These efforts are laudable as they go a long way in stabilising the economy. There is now a need for further reforms to “durably” anchor macro-economic stability, as the IMF said this week.
The global lender said the near-term macroeconomic imperative is to curb inflationary pressures by further tightening monetary policy, as needed, and allowing greater exchange rate flexibility through a more transparent and market-driven price discovery process, tackling FX market distortions, and eliminating exchange restrictions in line with recommendations from the 2022 Article IV consultation.
The tight fiscal and monetary measures face a stern test as we draw towards the 2023 elections. Elections are normally associated with populism in which authorities let loose the reins.
Zimbabwe is not out of the woods yet as there is a risk of exogenous factors especially in the importation of key essentials such as fuel. The Covid-19 pandemic and the Russia-Ukraine war have demonstrated that exogenous shocks can shape the direction of economies.
IMF said the outlook will depend on the evolution of external shocks, the policy stance, and implementation of inclusive growth-friendly policies.
