BUSINESS REPORTER
The International Monetary Fund (IMF) says Zimbabwe has made progress to stabilise the local currency but requires further reforms to “durably” anchor macro-economic stability.
The local currency has in the past took a battering against major currencies leading to the spiking of prices with annual inflation reaching 285% in August.
Fiscal authorities have responded by halting the extortionist pricing by its suppliers, blamed for fuelling the parallel while monetary authorities have tightened the screws and introduced gold coins to mop excess local currency balances from the system.
“The IMF mission notes the authorities’ efforts to stabilise the local foreign exchange market and lower inflation. In this regard, the recent tightening of monetary policy and the contained budget deficits are policies in the right direction and have contributed to the narrowing of the parallel market exchange rate gap,” the IMF said in a report after the conclusion of a virtual staff visit.
The global lender said further efforts are needed to durably anchor macroeconomic stability and accelerate structural reforms.
“In line with recommendations from the 2022 Article IV consultation, the near-term macroeconomic imperative is to curb inflationary pressures by further tightening monetary policy, as needed, and allowing greater exchange rate flexibility through a more transparent and market-driven price discovery process, tackling FX market distortions, and eliminating exchange restrictions,” IMF said.
It said structural reforms aimed at improving the business climate and reducing governance vulnerabilities are key for promoting sustained and inclusive growth.
“Durable macroeconomic stability and structural reforms would bode well for supporting Zimbabwe’s development objectives as embodied in the country’s National Development Strategy 1 (2021-2025),” IMF said.
It said the economy has shown resilience in the face of significant shocks and Russia’s war in Ukraine, the poor rainfall, and price pressures are adversely affecting economic and social conditions in Zimbabwe, already battered by the Covid-19 pandemic.
“Renewed price and exchange rate depreciation pressures emerged, notably in the second quarter of 2022, with inflation in August reaching 285 percent over a year earlier. After rising to about 7 percent in 2021, real GDP growth is expected to decline to about 3½ percent in 2022 reflecting a slowdown in agricultural and energy outputs owing to erratic rains and rising macroeconomic instability, amidst a recovery in mining and tourism,” IMF said.
The global lender said uncertainty remains high, however, and the outlook will depend on the evolution of external shocks, the policy stance, and implementation of inclusive growth-friendly policies.
The virtual IMF staff visit ran from September 12 to 19. The IMF staff team was led by Dhaneshwar Ghura.
