IMF rules out Zim bailout
THE International Monetary Fund (IMF) on Wednesday said it would not move an inch from its position that Zimbabwe did not qualify for financial bailouts even after clearing its debts to the global lender in 2016.
In a report that recognised progress towards rebuilding Zimbabwe’s ailing economy, IMF warned President Emmerson Mnangagwa of lingering headwinds, saying the southern African country’s debt distress was a source of worry.
It called on Mnangagwa’s administration to take steps to cool off jitters stemming from the volatile currency and work towards a string of reforms necessary to attract foreign direct investment.
Zimbabwe’s external debt was estimated at about US$8 billion at the end of 2020, with the country owing several international financial institutions including the World Bank, the African Development Bank and the Paris Club.
The IMF comments followed a virtual Article IV consultative meeting between Harare and the fund. The IMF team was led by Dhaneshwar Ghura.
It conducted meetings with Finance minister Mthuli Ncube, Reserve Bank of Zimbabwe governor John Mangudya and other senior government officials.
“Zimbabwe has been a fund member in good standing since it cleared its outstanding arrears to IMF in late 2016,” Ghura said in a statement.
“The fund provides extensive technical assistance in the areas of economic governance and financial sector reforms as well as macroeconomic statistics. However, the IMF is precluded from providing financial support to Zimbabwe due to an unsustainable debt and official external arrears,” the IMF noted.
“A fund financial arrangement would require a clear path to comprehensive restructuring of Zimbabwe’s external debt, including the clearance of arrears and obtaining financing assurances from official creditors; a reform plan that is consistent with macroeconomic stability, growth and poverty reduction; a reinforcement of the social safety net; and governance and transparency on reforms,” he added.
The position was largely expected, because with a ballooning debt, Zimbabwe’s risk profile remains high and lenders have been sceptical to continue pumping more funding as a result of default risks.
Without external funding, Harare slipped into a gruelling humanitarian crisis that saw over 500 000 workers lose jobs last year due to COVID-19-induced lockdowns, according to the World Bank.
Almost eight million Zimbabweans relapsed into extreme poverty since the pandemic broke out last year, forcing companies to wind up operations as government rolled out hard lockdowns.
However, the IMF also predicted that Zimbabwe’s gross domestic product (GDP) will grow by 6% this year, owing to a good agricultural output, increased energy production, and the resumption of greater manufacturing and construction activities.
It was the second time in a week that international lenders gave Ncube’s reforms a thumps up, after the World Bank predicted 3,9% growth last week.
Ghura also urged government to improve the co-ordination of fiscal, foreign exchange and monetary policies, while addressing COVID-19-related economic and humanitarian challenges.
“In line with the last Article IV consultation, the mission highlighted that structural reforms aimed at improving the business climate and reducing governance vulnerabilities are essential for ensuring sustained and inclusive growth,” Ghura said.
“To this end, the authorities’ strategy and policies as embodied in their National Development Strategy 1 need to be fully operationalised and implemented. Durable macroeconomic stability and structural reforms would bode well for the recovery and Zimbabwe’s development objectives.”
The fund commended government for its resilience and timely response towards the COVID-19 pandemic and other natural disasters.
“The IMF mission notes the authorities’ efforts to stabilise the local currency and lower inflation. In this regard, contained budget deficits and reserve money growth, as well as the introduction of a foreign exchange auction system, are policy measures in the right direction.”