IMF: Zim’s foreign exchange distortions severely affecting the economy

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By Alois Vinga

ZIMBABWE’s current foreign currency distortions are severely affecting the smooth running of the economy, an (IMF) delegation that has been visiting the country has concluded.

The delegation’s head, Gene Leon said foreign currency exchange rates coupled with natural disasters like the recent Cyclone Idai, have a negative bearing on the economy.

“Zimbabwe is facing deep macroeconomic imbalances, with large fiscal deficits and significant distortions in foreign exchange and other markets, which severely hamper the functioning of the economy,” Leon said.

The IMF representative said that the Southern African nation is facing the challenge of responding to the adverse effects on agriculture and food security induced by the el Nino-related drought, as well as the devastation from Cyclone Idai.

The team was in the country from the 1st to the 5th of April to assess the on-going Staff Monitored Program (SMP) that seeks to consider possibilities of opening new credit lines following years of global isolation and the refusal to offer credit lines to the country by the Bretton Woods institutions.

Leon’s statement comes just after the Reserve Bank of Zimbabwe moved to re-establish an interbank foreign currency market and allow for market forces to determine exchange rates in a major climb down from the initially upheld 1:1 fixed rate between the RTGS dollar and United States dollar.

Currently, the US dollar is being exchanged at a rate of around RTGS$ 3 on the interbank market.

However, the Confederation of Zimbabwe Industries(CZI), president Sifelani Jabangwe recently told Business that the business sector players had not yet received any foreign exchange through the re-established system and warned that the trend risks affecting markets.

In addition, the IMF confirmed that agreements were reached with government to allow the implementation of policies that underpin the objectives of the SMP.

The Bretton Woods institution also urged elimination of the central bank’s financing of the fiscal deficit, and adoption of reforms that allow market forces to drive the effective functioning of foreign exchange and other financial markets.