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IMF calls for stronger reforms

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BY TATIRA ZWINOIRA

THE International Monetary Fund (IMF) has emphasised that efforts to rebuild Zimbabwe’s faltering economy should revolve around concrete steps to reform its volatile currency and resolve a long-drawn debt crisis.

In his remarks during the 2020 International Monetary Fund (IMF) and World Bank (WB) annual meetings last week, IMF regional director Abebe Aemro Selassie said along with resolving the currency crisis, the country should resume frank dialogue with creditors to thresh out a repayment pact.

Zimbabwe is in debt distress and owes over US$10 billion to various international creditors.

During the 2015 annual meetings in Lima, Peru, Zimbabwe laid out a promising repayment strategy that was expected to attract international lenders back with fresh bailouts to help Harare finance a sea of problems requiring urgent attention.

International lenders shut their doors to Harare in 1999 after authorities defaulted on servicing debts to the IMF, the WB, the African Development Bank and the Paris Club.

The 2015 strategy ran into trouble after authorities failed to fulfil their end of the deal.

Selassie said while the IMF recognised ongoing currency reform efforts, debt distress remained a stumbling block to recovery.

The IMF chief warned that in the absence of confidence in Zimbabwe’s currency, the country may relapse into another inflationary bubble.

“We recognise the reasons why the government decided to do this (currency reforms). What’s really needed is a period of very strong reforms that will facilitate a dialogue with the country’s international creditors,” Selassie said during his virtual address.

“Domestically . . . make sure there is consistency in policies so that there is confidence in whatever currency the government is using, (or we may see another) unfortunate period of hyperinflation that Zimbabwe has suffered (before) . . . make sure that there is consistency in policies,” he emphasised.

“It really is about the credibility of the whole policy framework that is at stake,” he said.

“In our view, frankly, there is a role for the international financial community to play, particularly at a time like this when humanitarian support is of importance and I think those two will help move Zimbabwe forward,” added Selassie.

The IMF further trimmed Zimbabwe’s economic growth targets to -10,4% this year, from -7,4%.

Following a series of firefighting measures to avoid a further slowdown, the Reserve Bank of Zimbabwe introduced the foreign currency auction system in June, which has been credited for stabilising the currency.

Its battering prior to June had sparked fears it could tumble to US$1:ZW$200 by December this year, from US$1:ZW$2,5 on introduction last June.

The unit has since held its ground against the greenback, maintaining an exchange rate of US$1:ZW$81 on the auction system for many weeks, while halting a runaway parallel market.

However, while the Confederation of Zimbabwe Industries last week described this as a “fragile stability” the central bank at the weekend said it had enough ammunition to defend the currency.

“I have put both my hands on stability to make sure it is a success,” said central bank boss, John Mangudya.

“It is no easy road and we are working together,” Mangudya said.

“We need to monitor and support stability and one of the major ways we can do that is by sustaining the auction system in an efficient manner. We pray that we continue to sustain the auction system which has been doing wonders so far,” he said.

Last week, central bank statistics showed that over US$300 million had been traded on the foreign currency auction system since June.

Asked how the central bank was funding the auction system under the ongoing liquidity crisis, the central bank chief said internally generated resources had sustained the programme.

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