IMF tells Zimbabwe: keep monetary policy tight, lift forex controls, wind down gold coins

As inflation 'subsides', IMF recommends easing out gold coins (Photo by Shaun Jusa/Xinhua)

The IMF says as inflationary pressures ‘subside’ in Zimbabwe, the country must maintain a tight monetary policy, lift forex controls and ease out gold coins.

Ending its latest routine mission to Zimbabwe, an IMF team led by Dhaneshwar Ghura said on Thursday that Zimbabwe’s economy grew by 8.5% last year, more than the 7% that the Fund has previously estimated. The IMF expects the economy to only grow 3.5% this year, slower than Finance Minister Mthuli Ncube’s projection of 4%.

The IMF team says inflation is showing signs of slowing down.

“Currency and price pressures, which emerged earlier this year largely owing to a spike in broad money growth and an official exchange rate misaligned with market fundamentals, are subsiding,” the report says.

But risks are growing, the IMF warns, saying: “Renewed domestic and external shocks – inflation surge, erratic rainfall, electricity shortages, and Russia’s war in Ukraine – are, however, adversely affecting economic and social conditions.”

To keep inflation on its current path and prevent money supply growth, the IMF wants Zimbabwe to keep monetary policy tight and free the exchange rate. The IMF also says Government’s decision to put tighter controls on payments to controls was the right one, but more must be done.  

“In this context, Fund staff recommend accelerating the liberalisation of the forex market, including through the removal of restrictions on the exchange rate at which banks, authorised dealers, and businesses transact; addressing the Reserve Bank of Zimbabwe’s quasi-fiscal operations to mitigate liquidity pressures; maintaining an appropriately tight monetary policy stance to durably restore macroeconomic stability and ensure social stability; restoring the effectiveness of monetary policy, including through the use of appropriate interest-bearing instruments to mop up liquidity and winding down the use of gold coins; and maintaining a prudent fiscal stance.”

RBZ started issuing gold coins in July to help mop up excess liquidity. By November, 14 000 coins worth Z$13.6 billion had been sold.

Reacting, Persistence Gwanyanya, a member of the RBZ Monetary Policy Committee, says the bank never intended to make the gold coins permanent. 

“For record, gold coins are not a currency and therefore it was never RBZ’s intention to continue issuing them without limit,” Gwanyanya said. “The target was always to issue a maximum of 15 000 gold coins; that’s why IMF agreed with the authorities to wind down issuance of the gold coins.”


UPDATED with comment from MPC member