Business - Economic Updates - Featured - Finance - Local - Top Stories - November 17, 2021

IMF urges Zim to continue with fiscal close coordination

The International Monetary Fund (IMF) has urged financial authorities in Zimbabwe to continue with the close coordination among fiscal, exchange rate, and monetary policies to lock economic stabilization and accelerate reforms.

Zimbabwe’s economy contracted cumulatively by about 11 percent during 2019-20 owing to the combined effects of the pandemic, cyclone Idai, a protracted drought, and weakened policy buffers.

Following a severe wave in June-August 2021, COVID-19 infection rates have slowed significantly, lockdown measures have been eased, and the vaccination program continues steadily.

Economic activity is recovering in 2021, with real GDP expected to grow by about 6 percent, reflecting a bumper agricultural output, increased mining and energy production, buoyant construction and manufacturing activity, and increased infrastructure investment.

An International Monetary Fund (IMF) staff team, led by Dhaneshwar Ghura, Mission Chief for Zimbabwe, held discussions through virtual meetings applauded authorities for efforts to stem inflationary pressures.

“The IMF mission notes the authorities’ significant efforts to stem inflationary pressures. In this regard, contained budget deficits and reserve money growth, higher monetary policy rates, and more flexibility in the RBZ auction exchange rate, are policy measures in the right direction,” the team said.

In this context, key priorities relate to allowing greater official exchange rate flexibility and tackling FX market distortions, accompanied by an appropriate monetary stance; creating fiscal space for critical spending while containing fiscal deficits; implementing growth-enhancing structural and governance reforms; and continuing to enhance data transparency.

These reforms are paramount for improving the business climate and reducing governance vulnerabilities, and thus to foster higher sustained and inclusive growth.

“To this end, the authorities’ strategy and policies as embodied in their 2021-25 National Development Strategy 1 are appropriate and need to be fully operationalized and implemented. Durable macroeconomic stability and structural reforms would support the recovery and Zimbabwe’s development objectives,” the team stressed.

Further, the mission notes the authorities’ plans to use the recent SDR allocation to support spending in social, productive, and infrastructure sectors, as well as building reserve buffers.

“In this context, the use of the SDR allocation should not substitute for critical reforms, be spent on priority areas within a medium-term plan, and follow good governance and transparency practices,” said IMF.

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