IMF: Zimbabwe’s currency reforms are a ‘good step’, more fiscal measures needed

Zimbabwe IMF
Finance Minister Mthuli Ncube with Christine Lagarde, IMF MD, March 6

Zimbabwe’s new currency reforms are a “step in the right direction” towards solving market distortions, but they have to be backed up by prudence on the fiscal side and market-driven interest rates, the International Monetary Fund (IMF) says.

Finance Minister Mthuli Ncube was in Washington this week where he met IMF managing director Christine Lagarde and officials of the IMF’s Africa department.

Gerry Rice, spokesman for the IMF, said Ncube’s Transitional Stabilisation Programme was aimed at addressing “a deep macroeconomic imbalance challenge”. Recent reforms, part of which included central bank abandoning the 1:1 currency peg for a new forex interbank market, were a positive move, but one that needs to be backed up by further measures, Rice told reporters Thursday.

“And our initial evaluation of that which has been announced by the Zimbabwean authorities recently is that it’s a step in the right direction to address distortions that have significantly impaired those macroeconomic outcomes that I’ve mentioned. Its success, of course, the currency reforms’ success, will depend on the implementation of an effective overall monetary policy framework supported by market-determined interest and exchange rates, together with prudent fiscal policies,” Rice said.

In his monetary policy statement, Mangudya held rates, a move many say will distort the markets.

No IMF financing for Zimbabwe yet

The IMF paid off its $107.9 million arrears in 2016, but under the pari-passu rule, Zimbabwe must pay off its debts to all lenders simultaneously. This means that there are no prospects for a new financing programme for Zimbabwe, but Zimbabwe is discussing a staff monitored programme.

“So it’s the major set of challenges facing Zimbabwe. The IMF is trying to help. We’re engaged with them on how we can help them as much as possible,” said Rice. “So there’s no financing program with the IMF, but we’re looking to be supportive as we can, and so stay tuned for further developments.”

US sanctions on Zimbabwe remain

Chances of Zimbabwe accessing international credit dimmed even further this week with the extension of sanctions in Zimbabwe by the US, which already has measures that compel its officials at international financial institutions to block any debt relief or new credit to Zimbabwe.

The US State Department on Thursday also said President Emmerson Mnangagwa had not done enough to earn economic support from the US.

“We believe that President Emmerson Mnangagwa has yet to implement the political and economic overhaul required to improve the country’s reputation with the community of nations, and with the United States,” State Department spokesman Robert Palladino told reporters in Washington.

“The actions of the targeted individuals continue to undermine Zimbabwe’s democratic processes,” he said, adding that there were ongoing concerns in the US over human rights abuses.