NDAMU SANDU
The International Monetary Fund (IMF) says Zimbabwe should introduce interest bearing assets to mop excess liquidity and wind down the use of gold coins to “sustainably anchor economic growth”.
Monetary authorities introduced gold coins in July to mop excess local currency balances blamed for fuelling the parallel market leading to the rout of the local currency. It also hiked the bank policy rate to 200% from 80% to halt borrowing for speculative purposes.
The central bank last month introduced smaller denominated gold coins as it continued with its tight monetary policy stance.
To date gold coins have mopped over ZWL$10bn of excess local currency balances.
But the IMF has has recommended the removal of the gold coins, credited for stabilising the exchange rate.
In a report after the annual Article IV consultations, IMF said the central bank has to maintain an appropriately tight monetary policy stance to “durably restore macroeconomic stability and ensure social stability”.
IMF said the central bank has to restore the effectiveness of monetary policy, including through the “use of appropriate interest-bearing instruments to mop up liquidity and winding down the use of gold coins”.
It recommended that the central bank should accelerate the liberalisation of the forex market, including through the removal of restrictions on the exchange rate at which banks, authorised dealers, and businesses transact and addressing the Reserve Bank of Zimbabwe’s quasi-fiscal operations to mitigate liquidity pressures.
It said Treasury should maintain a prudent fiscal stance.
“Fiscal policy should aim at containing the deficit in line with available non-inflationary financing and creating fiscal space for critical spending. This can be achieved by mobilizing additional revenues, based on tax policy reforms, and by scaling back non-priority outlays, while strengthening public finance management,” the global lender said.
