IMF hails Zimbabwe’s Monetary Policy stance – says new ZiG currency “ended bout of instability”  

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By Alois Vinga

THE International Monetary Fund (IMF) has commended Zimbabwe for adopting a relevant Monetary Policy stance and projected an annual inflation rate of 7% by year-end.

In light of new policy developments in Zimbabwe, an International Monetary Fund (IMF) staff team led by  Wojciech Maliszewski conducted a second mission to Harare on June 18-27, 2024, to conclude the 2024 Article IV Consultation.

The Bretton Woods institution acknowledged that Zimbabwe’s economy continues showing resilience despite headwinds confronting it.

“Against this background, the Reserve Bank of Zimbabwe (RBZ) introduced in April 2024 a new currency—the Zimbabwe Gold (ZiG). The ZiG official exchange rate has so far remained stable, ending a bout of macroeconomic instability in the first 3 months of the year (when the Zimbabwean dollar depreciated by about 260 percent).

“Assuming that macro-stabilization is sustained, cumulative inflation in the remainder of the year is projected at about 7 percent,” the IMF said.

The IMF welcomed improvement in monetary policy discipline and recommended further refinements to the policy framework, underscoring that price stability would be best achieved by stabilizing the ZiG nominal exchange rate against a suitable basket of currencies.

The team opined that the exchange rate should be determined in a deeper market to provide relevant information in the decision regarding the monetary policy stance, which would require identifying and removing any remaining impediments to the functioning of the FX market to promote price discovery.

While economic growth is expected to decelerate to about 2% in 2024 (from 5.3 percent in 2023), as the country faces a devastating El Niño-induced drought and a higher import bill, a leap in growth is forecasted to take place next year to about 6% supported by a rebound in agriculture and ongoing capital projects in manufacturing.

The IMF also recommended the strengthening of governance systems at the MIF, which however is already seized with implementing such tasks on the expectation that everything will fall in place once the institution which is currently just three months old settles.

“However, the IMF is currently precluded from providing financial support to Zimbabwe due to its unsustainable debt situation—based on the IMF’s Debt Sustainability Analysis (DSA)—and official external arrears.

“An IMF financial arrangement would require a clear path to a comprehensive restructuring of Zimbabwe’s external debt, including the clearance of arrears and a reform plan that is consistent with durably restoring macroeconomic stability; enhancing inclusive growth; lowering poverty; and strengthening economic governance,” IMF added.