Measures adopted in Zimbabwe to tame further price increases through inflation and currency instability are paying off and should result in prices remaining stable going forward, the International Monetary Fund (IMF) said yesterday.
In a statement at the conclusion of its mission that ran from December 1 to 15, in the context of the 2023 Article IV Consultation, an IMF team led by Dr Dhaneshwar Ghura conceded that the hiking of interest rates by 200 percent and the introduction of gold coins, among other measures by the Reserve Bank of Zimbabwe, were paying off handsomely.
“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,” said the IMF.
“Annual inflation, which had increased to 285 percent in August 2022, has been decelerating since, a trend which if sustained by appropriate policies, would go a long way in anchoring inflation expectations.
“The IMF mission notes the authorities’ efforts to stabilise the local foreign exchange market and lower inflation. In this regard, the swift tightening of monetary policy along with greater official exchange rate flexibility and a prudent fiscal stance are policies in the right direction and have contributed to a narrowing of the premiums in the parallel foreign exchange market.”
The IMF said the introduction of the value-for-money policy in Government procurement, following large payments to suppliers due to over-invoicing, would help stabilise the exchange rate and consequently prices.
The Government had embedded these procedures by tightening procurement regulations to ensure companies offering services do not get more than they deserve.
In September this year, a scandal where some company wanted to supply laptops to Parliament of Zimbabwe at US$9 000 while another wanted to supply desktop computers at US$3 000 each, was unearthed. Several other companies involved in infrastructure contracts have been fingered for inflating costs, and then use the money to destabilise the market.
The IMF praised Zimbabwe for its swift handling of the Covid-19 pandemic through supporting businesses, livelihoods, and the health sector, resulting in real output growth of 8,5 percent in 2021, underscoring the economy’s resilience.
But renewed domestic and external shocks such as erratic rainfall, electricity shortages and geopolitical issues in Eastern Europe have affected economic and social conditions.
IMF expects real GDP growth to decline to about 3,5 percent in 2022, and if the shocks are not adequately dealt with, they might weigh down economic growth going forward.
A near-term policy imperative, said the IMF, was to sustainably anchor macroeconomic stability. In this context, IMF staff recommended accelerating the liberalisation of the foreign exchange market, maintaining an appropriately tight monetary policy stance to durably restore macroeconomic stability and ensure social stability, and winding down the sale of gold coins, among others.
The IMF added that international re-engagement remains critical for debt resolution and access to external financial support.
In a bid to advance the re-engagement process, Zimbabwe has adopted a strategy of arrears clearance, debt relief and restructuring, is making continued token payments to external creditors and has launched a dialogue to foster discussions among the stakeholders. Zimbabwe has been an IMF member in good standing since it cleared its outstanding arrears to in 2016.
The IMF provides extensive technical assistance in the areas of revenue mobilisation, expenditure control, monetary and exchange rate policy, banking sector, debt management, governance, and macroeconomic statistics.
In response to the IMF’s remarks on gold coins, Economist Mr Persistence Gwanyanya last night said the Monetary Policy Committee and RBZ never viewed gold coins “as a silver bullet but necessary intervention at the time”.
“The idea of gold coins was mooted to reverse the accelerated depreciation of the local currency. The attractiveness of the product drew away attention from the US dollar and the announcement effect was very impactful,” he said.
“For record, gold coins are not a currency and therefore it was never RBZ’s intention to continue issuing them without limit.”
By November 22, the RBZ had only issued 14 200 gold coins worth $13,6 billion.
The IMF staff held meetings with Finance and Economic Development Minister Professor Mthuli Ncube, his Permanent Secretary Mr George Guvamatanga, RBZ Governor Dr John Mangudya, Deputy Chief Secretary to the President and Cabinet Mr Willard Manungo, other senior Government and RBZ officials, representatives of the private sector, civil society, and Zimbabwe’s development partners. – The Herald
