“COVID-19 to further dampen Zim recovery efforts” IMF

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  • COVID-19 expected to affect economic outlook
  • Authorities urged to adopt coordinated fiscal, monetary and forex exchange policies
  •  Directors underscored the need to establish credibility in the new currency

The International Monetary Fund’s Executive Board has put forth recommendations for the Zimbabwean Government to implement to ensure social and economic stability in the face of an economic and humanitarian crisis.

Macroeconomic stability remains a challenge with the economy contracting sharply in 2019, amplified by climate shocks that have crippled agriculture and electricity generation while the newly introduced ZWL$ has lost most of its value, inflation is also very high (540.16% in February 2020) and international reserves are low.

In addition, the COVID-19 pandemic whose full impact is highly uncertain at the moment will adversely impact the economic outlook of Zimbabwe and require additional health-related spending and international support.

Against this backdrop, the IMF believes a change in policies and support of the international community will help avert some of the effects of the crises the nation is currently facing.

The Executive Directors (Directors) have urged the authorities to adopt coordinated fiscal, monetary and foreign exchange policies alongside with efforts to address food insecurity and serious governance challenges, emphasizing the importance of reengagement with the international community to support efforts to achieve economic sustainability and address the humanitarian crisis.

In addition, the Directors called for non-essential spending cuts, including decisive reforms to agricultural support programs, to allow for social spending needs after noting that pervasive deficits remain and could be exacerbated by the need to respond to the humanitarian crisis. They also underscored the importance of public financial management and enhanced domestic revenue mobilization efforts.

The Directors stressed that eliminating deficit monetization would not only be crucial for fiscal sustainability, but it would also serve as a precondition for the stabilization of hyper-inflation and the preservation of the external value of the currency.

The authorities were encouraged to give impetus to reengagement efforts and debt management and transparency and were cautioned against continued recourse to collateralized external borrowing on commercial terms as this may potentially complicate any future arrears clearance operation.

Furthermore, the Directors underscored the need to establish credibility in the new currency, encouraging the authorities to press forward with the establishment of a functional foreign exchange market and to remove distortions that could lead to rent-seeking behavior in the economy.

They also agreed that given low reserves and hyper‑inflation, limited credibility, and a lack of access to traditional forms of external financing, a monetary targeting regime is appropriate to conduct monetary policy while enhancing central bank independence and transparency, including by timely publication of monetary statistics, would be important.

Directors welcomed the progress on financial innovation, supervision and inclusiveness indicators. They noted, however, the need for continued vigilance to ensure financial stability. They encouraged the authorities to conduct asset quality reviews of the banking sector, develop a new framework for managing weak banks, and increase the effectiveness of the AML/CFT framework, including by effectively implementing FAFT standards.

Lastly, the Directors stressed the need to address governance and corruption challenges, entrenched vested interests and enforcement of the rule of law to improve the business climate and support private-sector-led inclusive growth.

These efforts, according to the Directors would be instrumental to advance reengagement efforts with the international community and mobilize the needed support.

They noted with regret that the Staff‑Monitored Program was off‑track and underscored the importance of continued engagement between the Fund and the authorities, including through technical assistance, policy advice and other innovative ways, to help immediately stabilize the economy and address the humanitarian crisis.

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