SDRs: A boost to Zim economy
Zimbabwe on Monday received US$961m from the International Monetary Fund under the U$650bn special drawing rights (SDR) allocation earmarked to provide additional liquidity to the global financial system.
The allocation, the biggest since the formation of the global lender, comes as economies are under stress due to the Covid-19 pandemic.
The allocation came after the IMF governors early this month unanimously approved a general allocation of SDRs equivalent to US$650bn.
The allocation of the SDR is a big boost for the Zimbabwean economy as it faces strong headwinds caused by the Covid-19 pandemic.
It is a big boost for an economy that cannot borrow from multilateral financial institutions due to its debt overhang.
As at end December 2020, total public and publicly guaranteed (PPG) external debt including Reserve Bank of Zimbabwe (RBZ) External guaranteed debt amounted to US$10.5bn, representing 71.2% of GDP, according to statistics from Treasury.
PPG external debt owed to the multilateral creditors, as at end December 2020, amounted to US$2.67bn, of which US$1.53bn is owed to the World Bank Group, African Development Bank (US$729m), European Investment Bank (US$356m) and US$68m to other multilateral creditors such as International Fund for Agricultural Development, Arab Bank for Economic Development in Africa and OPEC Fund for International Development.
This has forced Zimbabwe to be inward-looking, turning to the domestic market for a lifeline.
Companies are struggling to get foreign currency allotted at the foreign currency auction amid indications the backlog is taking two months with critics saying the platform was slowly losing steam as the gap between the auction and the parallel market continues to widen.
This threatens the stability the local currency enjoyed since the introduction of the forex auction system.
In a joint statement on Tuesday, Finance minister Mthuli Ncube and central bank chief John Mangudya said the SDRs will go a long way in buttressing the stability of the Zimbabwe dollar.
They said the money would be used to support the social sectors namely health, education, and the vulnerable groups and productive sectors that include industry, agriculture, and mining.
It will also be deployed in infrastructure investment covering roads and housing and foreign currency reserves and contingency fund, to support the domestic currency and macro-economic stability.
Authorities need to instill confidence by ensuring that the money deployed serves its intended purposes. Confidence is in short supply which has seen banks sitting on US$1.7bn which has the potential to catapult the economy.
IMF managing director Kristalina Georgieva referred to SDRs as a precious resource saying a decision on how they would be used rested on member countries.
“For SDRs to be deployed for the maximum benefit of member countries and the global economy, those decisions should be prudent and well-informed,” she said.
The message was heard in Zimbabwe with fiscal and monetary authorities pledging to use the funds prudently with utmost accountability.
This is a glorious opportunity that should not be squandered. The Treasury has to continue on its fiscal consolidation programme which will result in the government cutting the coat according to the size of the cloth.
The RBZ should continue with its disinflationary programme which has reduced the reserve money growth target to 20% per quarter from 25% as it tightens monetary policy targeting annual inflation of below 25% by December.
