IMF rules out loans for Zimbabwe over ‘unsustainable debt’

HARARE – An International Monetary Fund (IMF) staff team led by Dhaneshwar Ghura conducted a staff visit in Harare during September 12–19, 2022, to discuss recent economic developments and the economic outlook.

At the conclusion of the IMF mission visit, Ghura issued the following statement:

“Zimbabwe’s economy has shown resilience in the face of significant shocks. Russia’s war in Ukraine, the poor rainfall, and price pressures are adversely affecting economic and social conditions in Zimbabwe, already battered by the COVID-19 pandemic. Renewed price and exchange rate depreciation pressures emerged, notably in the second quarter of 2022, with inflation in August reaching 285 percent over a year earlier. After rising to about 7 percent in 2021, real GDP growth is expected to decline to about 3½ percent in 2022 reflecting a slowdown in agricultural and energy outputs owing to erratic rains and rising macroeconomic instability, amidst a recovery in mining and tourism. Uncertainty remains high, however, and the outlook will depend on the evolution of external shocks, the policy stance, and implementation of inclusive growth-friendly policies.

“The IMF mission notes the authorities’ efforts to stabilise the local foreign exchange market and lower inflation. In this regard, the recent tightening of monetary policy and the contained budget deficits are policies in the right direction and have contributed to the narrowing of the parallel market exchange rate gap.

“Further efforts are needed to durably anchor macroeconomic stability and accelerate structural reforms. In line with recommendations from the 2022 Article IV consultation, the near-term macroeconomic imperative is to curb inflationary pressures by further tightening monetary policy, as needed, and allowing greater exchange rate flexibility through a more transparent and market-driven price discovery process, tackling FX market distortions, and eliminating exchange restrictions. The RBZ’s quasi-fiscal operations should be transferred to the budget to enhance transparency, improve the conduct of monetary and exchange rate policy, and enhance central bank independence. Structural reforms aimed at improving the business climate and reducing governance vulnerabilities are key for promoting sustained and inclusive growth. Durable macroeconomic stability and structural reforms would bode well for supporting Zimbabwe’s development objectives as embodied in the country’s National Development Strategy 1 (2021-2025).

“As stated in the 2022 Article IV consultation, Zimbabwe has been a Fund member in good standing since it cleared its outstanding arrears to the IMF in late 2016. The Fund provides extensive technical assistance in the areas of economic governance and financial sector reforms, as well as macroeconomic statistics. The IMF is, however, precluded from providing financial support to Zimbabwe due to unsustainable debt and official external arrears. A Fund financial arrangement would require a clear path to comprehensive restructuring of Zimbabwe’s external debt, including the clearance of arrears; a reform plan that is consistent with macroeconomic stability, growth and poverty reduction; a reinforcement of the social safety net; and governance and transparency reforms. International reengagement remains critical for debt resolution and access to financial support.

“The outcome of the IMF staff visit will serve as a key input in the preparations for the next Article IV consultation mission.

“The IMF staff held meetings with Minister of Finance and Economic Development Professor Mthuli Ncube, his Permanent Secretary George Guvamatanga, the Reserve Bank of Zimbabwe Governor John Mangudya, other senior government and RBZ officials, representatives of the private sector, civil society, and Zimbabwe’s development partners.

“The IMF staff wishes to express its gratitude to the Zimbabwean authorities and stakeholders for the constructive and open discussions and support during the mission.”

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