Zimbabwe central bank needs reform: IMF

HARARE — Governance at Zimbabwe’s central bank must be strengthened and its role refocused after the country abandoned its local currency, the International Monetary Fund (IMF) said Tuesday.

Zimbabwe tossed out the local unit in January 2009, after years of world-record hyperinflation left it worthless, and allowed trade in US dollars and other foreign currencies.

Reserve Bank governor Gideon Gono, who presided over the Zimbabwe dollar’s collapse and who was best known for introducing notes printed in astronomical denominations, remains at the helm of the bank.

His presence as the bank’s chief remains a major sticking point in the fragile unity government between veteran President Robert Mugabe and the new Prime Minister Morgan Tsvangirai.

The IMF said after consultations on Zimbabwe that the Reserve Bank needed to appoint a board to strengthen governance, and adopt a budget that would downsize its operations.

“Governance needs to be strengthened, including through appointment of a Reserve Bank of Zimbabwe (RBZ) governing board… and approval of an RBZ operating budget envisaging a significant downsizing and refocusing on core activities under the multi-currency system,” it said in a statement.

The Fund also warned that Zimbabwe’s banking system faces increasing risks, even though deposits soared by 35 percent during the last quarter of 2009 to 1.35 billion US dollars.

“Risks to the banking system are rising significantly and should be mitigated by stepping up prudential measures,” the IMF said.

The comment came as small local banks are trying to meet a 12.5 million dollars capital requirement in order to maintain their licenses ahead of a March 31 deadline.

Zimbabwe has 23 registered banks, but deposits are dominated by five majors including Barclays, Standard Chartered, Stanbic and two other local institutions.

The local subsidiaries of international banks also face uncertainty in light of a new black economic empowerment law that require major foreign firms to divest 51 percent stakes to non-white Zimbabweans within five years.

Zimbabwe’s economy grew by 4.7 percent last year, the first growth in a decade.

But the IMF said the economic recovery remains fragile.

“Significant policy challenges need to be addressed without delay,” it said.

“In the area of structural reforms, the business climate, particularly respect for property rights, needs to be strengthened,” it said.

“The flexibility of labor markets, including with regard to wage levels, needs to be increased to improve Zimbabwe?s competitiveness and attractiveness to domestic and foreign investors,” the Fund added.

The southern African country has arrears of 140 million dollars to the IMF.

The global lender last month restored Zimbabwe’s voting rights after a seven-year suspension, but said the country would not be able to access formal loans until the arrears are settled. AFP

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