Zimbabwe takes key step towards new IMF staff monitored programme

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

The International Monetary Fund (IMF) says it has reached an agreement with Zimbabwe on a second staff monitored programme (SMP), as the country undertakes sweeping economic reforms.

The agreement to embark on a new SMP, reached with an IMF staff mission which visited Zimbabwe early this month, is subject to approval by the Fund’s management.

The SMP aims to implement “a coherent set of policies that can facilitate a return to macroeconomic stability”, said Gene Leon, who led the IMF mission to Harare from April 1-5 to discuss steps towards an SMP for Zimbabwe. 

Under an SMP, the IMF staff monitor a country’s economic targets and policies. It is not the same as an IMF programme, where the Fund provides financial support. Zimbabwe’s last such programme ran between 2013 and 2015. 

Leon said Zimbabwe is facing deep macroeconomic imbalances, with large fiscal deficits and significant distortions in foreign exchange and other markets, which severely hamper the functioning of the economy. 

In addition, he said, Zimbabwe is facing the challenge of responding to the adverse effects on agriculture and food security of the El Nino-related drought, as well as the devastation from Cyclone Idai.

“Successful implementation will assist in building a track record and facilitate Zimbabwe’s reengagement with the international community. The policy agenda to be monitored under the SMP is anchored on the authorities’ Transitional Stabilization Program and emphasizes fiscal consolidation, the elimination of central bank financing of the fiscal deficit, and adoption of reforms that allow market forces to drive the effective functioning of foreign exchange and other financial markets,” Leon said. 

The IMF said the agreed policies are “macroeconomic and structural” and will be expected to remove “critical distortions that have held back private sector growth and to improve governance”.

The IMF staff team met with Finance Minister Ncube, Reserve Bank of Zimbabwe Governor Mangudya, other senior government and RBZ officials, and non-government representatives. 

IMF spokesman Gerry Rice has said Zimbabwe’s new fiscal and monetary policy measures are a “step in the right direction”, but which need to be backed up with stability and more moves to allow the market to dictate currency and interest rates. 

The latest news brings a small cheer to Ncube, after the IMF on Tuesday forecast Zimbabwe economy to contract by -5.2% this year, which would be the first time that negative growth is experienced since 2008. 

The country is still, however, a long way away from qualifying for fresh IMF credit. 

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 immediate prospects for a new financing programme for Zimbabwe.