Financial Times
Secret money printing by the central bank of Zimbabwe has derailed efforts to revive the southern African nation’s stricken economy and now threatens to end IMF oversight of the government’s reform drive.
President Emmerson Mnangagwa, who took power in a 2017 coup, pledged last May to implement a series of initiatives designed to stabilise the economy.
The IMF agreed to monitor the effort, including the relaunch of a local currency, but on Wednesday said the programme was “off-track”.
“Uneven implementation of reforms, notably delays and mis-steps in FX and monetary reforms, have failed to restore confidence in the new currency,” the IMF said in a statement.
But according to people familiar with the discussions between the government and the IMF, the multilateral lender’s greatest concern was a recent discovery by IMF officials that the central bank had restarted printing the revived Zimbabwe dollar to provide state subsidies to gold producers.
The money-printing scheme, which went against IMF advice, was designed to incentivise gold exports but hastened a decline in the local currency, the people said, declining to be identified. The Zimbabwe dollar has lost 90 per cent of its value against the US dollar since it was reintroduced last year.
The IMF did not refer to the scheme in its statement. The Reserve Bank of Zimbabwe did not respond to a request for comment. Mr Mnangagwa had hoped the IMF’s backing would help him to unlock international funding, blocked since he replaced the late dictator Robert Mugabe three years ago.
But the Washington-institution’s continued involvement in his government’s reforms is now in doubt, the people said.
The gold subsidy “was one of the central reasons that the IMF came to a conclusion that the programme is off-track,” said a senior Zimbabwean official.
The subsidy has now been stopped and a plan to continue monetary reforms without IMF oversight is being crafted, the official added.
The IMF programme for Zimbabwe only dispensed advice, not loans, but was seen as critical to stabilising the economy, which contracted more than 8 per cent in 2019, the IMF estimates.
A new IMF monitoring programme would need “a credible package [of policies] to address the macro-economic imbalances that are still there, importantly to have adequate social protection, and it would need to tackle macro-critical governance weaknesses,” said Gene Leon, the head of the IMF mission to Zimbabwe.
Under the programme, agreed in May 2019, Mr Mnangagwa’s government had pledged to stop printing money to pay for state activities. The finance ministry embarked on large spending cuts to reduce a deficit that had traditionally been financed by the central bank, and fuel and other import subsidies were ended.
Still, money supply growth in 2019 far outpaced an IMF target of 10 per cent, reaching 127 per cent by the end of the year. Zimbabwe had already received warnings from the IMF in September over payments at inflated exchange rates made by the central bank to Sakunda Holdings, a fuel importer owned by an ally of Mr Mnangagwa.
Officials said the gold subsidy scheme was intended to support miners who are required by the central bank to convert much of their US dollar export earnings at the official exchange rate.
Since the US dollar is worth far more on the street, the miners were losing money and the subsidy aimed to reduce this loss and discourage producers from selling their gold on the black market.
