Tighten fiscal, monetary policies: IMF tells Zim

NDAMU SANDU

The International Monetary Fund (IMF) says countries such as Zimbabwe have to adjust policies “more aggressively” to contain inflation.

Global economies are battling to contain inflation fuelled by the rise in the prices of oil and food due to the Russia-Ukraine war.

The IMF says 123 million people or about a tenth 12 of sub-Saharan Africa’s population are expected to face acute food insecurity by the end of the year.

“For example, a rapid tightening may be needed in countries with very high inflation (Zimbabwe) or acute domestic demand pressures (Ghana),” the IMF said in a regional economic outlook report for October.

The call by the IMF comes as Zimbabwe has maintained a tight fiscal and monetary stance to contain inflation.

The central bank raised the bank policy rate to 200% from 80% in a bid to cut on speculative borrowing, blamed for fuelling inflation.

It has also introduced gold coins to mop excess local currency balances. Over 10,000 gold coins have been sold.

The tight monetary policy stance has created consternation in the economy amid fears that it reduces lending to the productive sectors.

Companies say the high interest rates discourage lending at a time firms require funding for retooling and working capital.

Treasury has been cutting the coat according to the size of the cloth. It has also been tough on its suppliers amid revelations that some of its suppliers were inflating prices and off-loading the proceeds on the parallel market leading to the routing of the local currency.

Under the value for money concept, government officials that play a midwife role in inflating prices risk prosecution while suppliers will be blacklisted for future contracts.

The call by the IMF comes as Finance and Economic Development minister Mthuli Ncube recently said that the tight monetary and fiscal stance continue until month on month inflation is below 3% and that trend is sustained in the next four months.

Month on month inflation eased to 3.2% in October from 3.5% last month. Year on year inflation slowed to 286.8% in October from 280.4% last month.

The global lender said many countries have turned to immediately available short-term support measures, addressing both fuel and food price pressures in the context of an overall cost-of-living squeeze.

“Some countries have cut taxes on food or fuel (Malawi, Niger, Senegal, Zimbabwe), and others have introduced new subsidies (Kenya, Senegal, Zambia). A number have introduced price controls (Benin, Côte d’Ivoire), allocated credit to key importers or agricultural firms (Sierra Leone), made direct government arrangements to import critical staples (Ethiopia), and introduced export restrictions (Côte d’Ivoire).” IMF said.

It said some of the measures may be a necessary expedient in the current emergency, but they should also be phased out eventually.

“Many programmes, like subsidies, are often expensive and poorly targeted, funneling public funds to those with the greatest consumption rather than the greatest need, and at the expense of other critical priorities such as public investment. For example, fuel subsidies—which seem less critical than food assistance measures at the current juncture—are often extremely costly, regressive, and ultimately unsustainable,” IMF said.

“Similarly, price caps and export restrictions can generate significant distortions, with increasingly adverse consequences for food insecurity, growth, and poverty reduction.”