HARARE – The International Monetary Fund (IMF) is urging Zimbabwe to implement a series of reforms to tackle economic instability, with a strong focus on addressing corruption vulnerabilities as a key driver of sustainable growth.
The IMF delegation led by Wojciech Maliszewski has concluded a crucial mission to Zimbabwe, urging the government to implement significant economic reforms to address high inflation, currency instability, and unsustainable debt.
“Discussions covered policies to restore macroeconomic stability and improve growth prospects, focusing on addressing the sources of fiscal pressures including quasi-fiscal operations (QFOs) of the Reserve Bank of Zimbabwe (RBZ); liberalizing the foreign exchange market and establishing an effective framework for exchange rate and monetary policies; and progressing on reforms to improve economic governance and reduce corruption vulnerabilities.
“Economic activity in Zimbabwe continues to show resilience despite major challenges,” said Maliszewski.
“However, this resilience is fragile and depends heavily on progress towards macroeconomic stabilisation and transformational structural reforms.”
The IMF estimates Zimbabwe’s GDP grew by 5.3% in 2023, driven by agriculture and mining. The growth is, however, expected to slow down in 2024 due to the El Niño induced drought and lower commodity prices.
While remittances are expected to remain strong, the mission noted that the ditched local currency (ZWL) had continued to experience significant depreciation, creating a wide gap with the parallel market rate.
“This instability weighs on business sentiment. Furthermore, exchange rate restrictions continue to burden the formal sector, promoting informality and eroding the tax base,” highlighted Maliszewski.
The IMF, however, commends the government’s commitment to address fiscal pressures. A key step is the transfer of the Reserve Bank of Zimbabwe’s (RBZ) external liabilities to the Treasury.
The mission warns that servicing these obligations will create a significant financing gap in the 2024 budget.
“Discussions focused on identifying ways to close this gap without resorting to inflationary financing.
“The mission encourages the authorities to develop and implement a comprehensive plan to address this challenge,” said Maliszewski.
The IMF also emphasises the need for a more market-driven approach to foreign exchange.
“We encourage the authorities to accelerate the FX market reform by promoting a transparent price discovery mechanism for the official exchange rate and removing existing restrictions,” Maliszewski urged.
“The 10% allowable trading margin for pricing domestic transactions should be eliminated to foster a more efficient market.”
Beyond currency reforms, the IMF stresses the importance of structural reforms to improve the business environment, strengthen governance, and reduce corruption.
“These reforms are essential for promoting sustained and inclusive growth, aligning with Zimbabwe’s National Development Strategy 1 (2021-2025),” stated Maliszewski.
The IMF is currently unable to provide financial support to Zimbabwe due to its unsustainable debt situation and outstanding arrears. However, the organisation said it remains committed to supporting Zimbabwe through policy advice and technical assistance in various areas.
“Securing an IMF financial arrangement will require a clear path to comprehensive debt restructuring, including clearing arrears and implementing reforms to ensure lasting macroeconomic stability, inclusive growth, poverty reduction, and robust economic governance,” Maliszewski concluded.
The mission believes that implementing the recommended reforms will be critical for stabilising the economy, attracting investment, and achieving sustainable growth and development.
In January this year, Transparency International Zimbabwe (TIZ) reported that Zimbabwe scored low on their latest Corruption Perception Index (CPI), indicating a perception of high corruption in the country.
Zimbabwe has scored 24/100 against the regional average of 33/100, suggesting that the country may have weaker legal systems and democratic institutions compared to other countries in the region.
The CPI scores countries on a scale of 0 to 100, with higher scores indicating a stronger perception of transparency and accountability.
