The International Monetary Fund (IMF) says Zimbabwe has to restore confidence to attract necessary dollar inflows and demonstrate it is ready for business by stemming policy uncertainties.
BY TARISAI MANDIZHA
In a report after the completion of the annual 2017 Article IV visit, the global lender also cautioned Zimbabwe to contain debt issuance and refrain from central bank financing. The mission ran from May 2 to 13.
“Restoration of confidence is essential for attracting the necessary dollar inflows to the economy. Refraining from central bank financing of the deficit and containing the issuance of debt and quasi-currency instruments is vital. Furthermore, the financial sector should restore its role of intermediating resources in the economy by channelling deposits to productive credit rather than financing fiscal operations,” IMF said.
Since 2014, government has issued Treasury Bills (TBS) worth $4,4 billion. Of that, 25% went to finance government expenditure while the balance was used to settle legacy debts. Government’s borrowing from the domestic market has led to the crowding out of the private sector through issuance of TBs and also led to cash shortages for the private sector, according to a latest World Bank report.
IMF recommended that Zimbabwe has to take action to “unleash the potential of the private sector and ensure that growth benefits the most vulnerable segments of the population”.
It said Zimbabwe has to demonstrate it was open for business by “enhancing efforts to tackle corruption, encouraging private sector investment, allowing the market to determine prices, promoting labour flexibility, and creating a stable legal and regulatory framework to reduce policy uncertainty”.
“Moreover, there is room for enhancing domestic revenue mobilisation, boosting transparency in the mining sector, and improving governance in public enterprises to strengthen the country’s fiscal position,” the global lender said.
IMF said recovery in agriculture and mining would drive growth this year, adding that maintaining the growth momentum required action to expedite the authorities’ plans to reduce the deficit to a sustainable level.
Excessive government spending, if continued, could exacerbate the cash scarcity, further jeopardise the health of the external and financial sectors, and, ultimately, fuel inflation, it said.