IMF pressures Govt to slash spending

LIVINGSTONE MARUFU

The International Monetary Fund (IMF), a key Bretton Woods institution whose stance often influences global funders, has set a clear and uncompromising agenda for Zimbabwe, demanding stringent fiscal discipline, a deeper and more transparent foreign exchange market, if the southern Africa country is to finally break free from its long-standing economic instability.

Business Times, a market leader in business, financial and economic reportage, can report that this push came through strongly during the ongoing IMF mission in Harare, led by mission chief Wojciech Maliszewski, who has made it clear that Zimbabwe’s recent economic progress remains fragile and dependent on bold, sustained reforms.

The mission, currently engaging Treasury and key stakeholders, will be in the country until June 18 as part of negotiations on the Staff-Monitored Programme (SMP), a critical step toward clearing Zimbabwe’s massive debt arrears.

“We are here to support Zimbabwe in entrenching fiscal discipline, which is the backbone of macroeconomic stability,” Maliszewski said, underscoring the importance of sound public financial management to prevent erratic government spending that could unravel progress.

Fiscal discipline — controlling government expenditure to ensure it remains within sustainable limits — is the foundation on which Zimbabwe’s fragile recovery depends.

Without strict budgetary control, the country risks a resurgence of inflationary pressures and macroeconomic imbalances that could undermine investor confidence and economic growth.

Finance Minister Professor Mthuli Ncube acknowledged the magnitude of this challenge but reiterated the government’s commitment to maintaining fiscal discipline.

“Fiscal discipline ensures we stay within our means and avoid risks that could compromise development and growth,” he said. “As we prepare our Mid-Term Budget Review and Budget Strategy Paper, we are focused on embedding this discipline in all aspects of government spending.”

The IMF’s demand aligns with global best practices, highlighting the need for predictable and transparent public finances to build investor trust and create an enabling environment for private sector expansion — essential for Zimbabwe’s job creation and growth.

Another critical pillar of the IMF’s agenda is the deepening of Zimbabwe’s foreign exchange market to allow for true price discovery and to bridge the yawning gap between the official and parallel exchange rates.

Zimbabwe’s foreign currency market has been characterized by significant distortions — the parallel market rates and official rates often diverge sharply, causing confusion and discouraging trade and investment.

This dual pricing mechanism has long undermined economic planning and market confidence.

“A deeper and more liquid forex market will allow the official and parallel rates to converge naturally,” Maliszewski explained.

“This convergence does not necessarily mean the currency must depreciate — it can happen within a stable macroeconomic framework, which we want to help Zimbabwe achieve.”

By eliminating distortions between different segments of the forex market, Zimbabwe can foster transparency and restore confidence in its currency management.

Such reform will smooth the way for trade, investment, and economic planning by providing businesses with a clear and stable exchange rate environment.

The Zimbabwe Gold (ZiG) currency has emerged as a stable monetary anchor amid years of volatility and monetary uncertainty.

However, the IMF insists that stability alone is not enough; the ZiG must be fully embraced and widely used as the national currency to anchor Zimbabwe’s monetary system.

Maliszewski emphasized: “We want to see the ZiG not only stable but fully recognized and adopted as Zimbabwe’s national currency. This requires complementary reforms — fiscal discipline and forex market deepening — to work hand in hand.”

Minister Ncube noted encouraging signs from the business community.

“Companies can now plan investments and expand production lines with greater certainty thanks to ZiG’s relative stability. Our goal is for ZiG to underpin Zimbabwe’s monetary system fully, reducing reliance on multiple foreign currencies and strengthening monetary sovereignty.”

Zimbabwe’s battle with inflation has been long and painful, but recent data shows significant month-on-month declines. The IMF mission acknowledged this progress as a positive step toward macroeconomic stability.

“Month-on-month inflation has come down significantly,” Maliszewski observed, “creating a more predictable environment for businesses to operate and invest.”

Inflation control is crucial not only for preserving citizens’ purchasing power but also for stabilizing input costs and boosting private sector confidence. Professor Ncube shared insights from visits to various companies across the country: “The stability being experienced is welcomed by businesses, many of which are now investing and increasing capacity utilization. This momentum must be sustained through continued fiscal and monetary discipline.”

Zimbabwe’s massive debt arrears—estimated at around US$21bn—have barred the country from accessing affordable international financial markets, thereby limiting infrastructure development and broader economic recovery.

The SMP discussions with the IMF form a key milestone on the roadmap to clearing these arrears. Prof Ncube described the programme as “a critical step in our efforts to unlock international finance and restore Zimbabwe’s credibility in global markets.”

Maliszewski added, “Sustained fiscal and macroeconomic reforms under the SMP will rebuild creditor confidence, which is essential to unlocking cheaper global capital needed for Zimbabwe’s infrastructure and development projects.”

Clearing arrears will not only reduce the country’s debt servicing costs but also open opportunities for private investment and growth, creating jobs and broadening economic participation.

Beyond fiscal and monetary adjustments, the IMF is pressing Zimbabwe to implement comprehensive structural reforms focused on improving governance, institutional capacity, and public financial management.

“These reforms will deepen Zimbabwe’s economic resilience and ensure that gains are sustainable,” Maliszewski said. “They align with Zimbabwe’s National Development Strategy 2 and Vision 2030 — plans designed to transform the economy into a middle-income status by the end of the decade.”

Professor  Ncube affirmed the government’s commitment to these reforms as critical pillars for long-term growth.

“We recognize that fiscal discipline and monetary reform alone are insufficient. Strengthening institutions, enhancing governance, and improving transparency are vital for transforming Zimbabwe.

Both the IMF and the Government of Zimbabwe agree that the progress made so far is encouraging but remains fragile. The country stands at a crossroads: sustained reform implementation can deliver durable stability and growth, while policy backsliding could reignite inflation, currency instability, and investor flight.

“The gains made are promising but fragile,” Maliszewski cautioned. “Sustained fiscal discipline, forex market deepening, and full adoption of the ZiG currency are non-negotiable if Zimbabwe is to build a resilient and inclusive economy.”

Professor Ncube echoed this urgency. “Our partnership with the IMF is vital as we navigate the complex path toward economic stability, growth, and transformation. We are committed to working tirelessly to meet these reform imperatives.”

The IMF’s firm agenda for Zimbabwe is clear: stringent fiscal discipline, deeper forex market reform, and full adoption of the Zimbabwe Gold currency are prerequisites for lasting economic stability and growth.

Meeting these conditions will enable Zimbabwe to clear its debt arrears, unlock vital international capital, and establish a predictable, investor-friendly business environment.

This, in turn, will underpin job creation, business expansion, and a much-needed transformation of the country’s economy.

For Zimbabwe, the message is unequivocal — reform is not optional; it is essential.

The future prosperity of the nation hinges on the government’s ability to deliver on these demands with resolve and transparency.