Rate stability key to steady economy: IMF

THE International Monetary Fund ( IMF) has said containing fiscal spending, ensuring non-inflationary financing of public programmes, and exchange rate stability will be key to ending economic volatility in Zimbabwe for balanced and sustainable growth.

This comes as Zimbabwe’s unsteady economy continues to be buffeted by incessant inflationary pressures emanating from exchange rate instability, which saw inflation racing to new heights.

While prices of goods and services in Zimbabwe, indexed to the exchange rate, have sky-rocketed since the reform agenda started late last year against an acute dollar crunch and imports heavy external position, wages and salaries have lagged significantly.

The IMF made the remarks in a statement after its staff, led by Gene Leon, concluded its visit to Harare from 5 to 19 September 2019 for the Article IV Consultation and Discussions on the First Review of the Staff Monitored Programme ( SMP).

The IMF team met President Mnangagwa, Finance and Economic Development Minister Mthuli Ncube, Reserve Bank of Zimbabwe governor Dr John Mangudya, senior Government officials, legislators, captains of industry, civil society and development partners.

Discussions during the visit covered recent economic developments, near and medium term outlook, risks to the economy, developments in the financial sector and policies to restore stability and build a foundation for strong, balanced and sustainable growth.

Describing the meetings with the authorities as productive, Mr Leon said weakening confidence, foreign currency market distortions, and a recent expansionary monetary policy stance had increased pressure on the Zimbabwean dollar exchange rate.

The IMF said the local currency exchange rate had depreciated from US$ 1 to ZWL$ 1 in February to US$ 1 to ZWL$ 16,5 by September 23, 2019, fostering high inflation estimated at 300 percent by August 2019.

“Policy actions are urgently needed to tackle the root causes of economic instability and enable private sector led growth. The key challenge is to contain fiscal spending consistent with non-inflationary financing and tighten monetary policy to stabilise the exchange rate and start rebuilding confidence in the national currency,” IMF said.

The global funder said risks to budget execution entailed demands for further public sector wage increases, RBZ quasi-fiscal activities that Treasury must absorb and pressure to fund agriculture, which could push spending back to unsustainable levels.

“There is (also) need to strengthen foreign exchange market operations and improve transparency on monetary statistics,” the IMF said, adding the adjustments needed to be backed by expedited re-engagements on both the economic and political fronts.

The IMF pledged to continue dialogue with Government over the coming weeks on economic policies to restore stability while accommodating spending to alleviate food insecurity and cushion the vulnerable groups.

These discussions will continue during the IMF, World Bank annual meetings scheduled for October 14 to October 20, 2019.