Last week, the Executive Board of the International Monetary Fund (IMF) concluded Article IV consultation with Zimbabwe.
The Bretton Woods institution delivered a bittersweet message for Zimbabwe and authorities are still smarting from the sucker punch.
Zimbabwe’s quest to restore economic relations with the IMF appears to have gone off the rails after the multilateral lender indicated that it would soon end the Fund’s oversight of the government’s reform agenda.
It never rains but it pours for Zimbabwe. Last year, Harare promised to undertake a raft of reforms under the IMF Staff Monitored Programme (SMP).
The SMP which would see Zimbabwe adopting tight fiscal consolidation, monitor money supply and push for the privatisation of state-owned parastatals has not yielded the desired results.
A few boxes have been ticked in this checklist, immediately raising questions on the efficacy of IMF prescriptions and the government’s commitment to reforms.
That Zimbabwe is experiencing an economic and humanitarian crisis is there for all to see.
Despite echoing bullish sentiments, macroeconomic stability remains a challenge: the Zimbabwe dollar has lost 90% of its value since its reintroduction last year; inflation is very high; and international reserves are very low and output from the real sector is subdued.
For Finance minister Mthuli Ncube, 2019 was the year that he told Zimbabwe and the world that he had achieved what his predecessors had failed.
He said austerity measures adopted by the government were paying off. Ncube said the Treasury had registered a monthly surplus.
The IMF acknowledged his efforts but said that was not enough.
The multilateral lender said while notable reforms which include a significant fiscal consolidation that has helped reduce the monetary financing of the deficit, the uneven implementation of reforms, notably delays and missteps in FX and monetary reforms have failed to restore confidence in the new currency.
Put differently, the IMF is saying the reintroduction of the mono-currency 10 years after adopting the multicurrency system was ill-timed.
Turning to reengagement, the IMF noted that the process of restoring economic and political relations with the international community continues to face delays.
Ncube’s economic diplomacy also came under the spotlight. After being appointed FinMin, the Oxford University-trained economist who had previously worked at one of Zimbabwe’s external creditors—the African Development Bank—undertook to clear arrears with the World Bank with two years. We were fooled.
The IMF team revealed that the Zimbabwean government has yet to define the modalities and financing to clear arrears to the World Bank and other multilateral institutions, and to undertake reforms that would facilitate the resolution of arrears with bilateral creditors.
This continues to constrain Zimbabwe’s access to external official support. As a result, the authorities face a difficult balance of pursuing a tight monetary policy to reduce very high inflation and prudent fiscal policy to address the macroeconomic imbalances and build confidence in the currency, while averting a crisis.
The jury is out.