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IMF Approves Staff-Monitored Program for Zimbabwe

Christine Lagarde
Christine Lagarde

The International Monetary Fund (IMF) has approved a one-year Staff-Monitored Program (SMP) for Zimbabwe designed to support the Zimbabwe government’s reform agenda, including the so-called Transitional Stabilization Program tailor-made to address structural rigidities in the economy while also taking key steps to address the macroeconomic imbalances.

In a statement, the IMF said it is aware that Zimbabwe faces deep macroeconomic imbalances, adding that President Emmerson Mnangagwa’s government “is committed in addressing the macroeconomic imbalances, removing structural distortions to facilitate a resumption in growth, and to re-engaging with the international community including by clearing its external arrears.

“The authorities have elaborated a comprehensive structural reform program—the Transitional Stabilization Program—to address structural rigidities in the economy while also taking key steps to address the macroeconomic imbalances by halting the issuance of quasi-currency instruments to finance the deficit (since September 2018) and introducing a new domestic currency in February 2019.”

The IMF said the SMP is designed to support the authorities’ reform agenda. “The SMP will be monitored on a quarterly basis, and is intended to assist the authorities in building a track record of implementation of a coherent set of economic and social policies that can facilitate a return to macroeconomic stability and assist in reengagement with the international community.”

Economic policies under the SMP emphasize the restoration of macroeconomic and financial sector stability through: implementing a large fiscal adjustment, the elimination of central bank financing of the fiscal deficit, and adoption of reforms to allow the effective functioning of market-based foreign exchange and debt markets.

Structural reforms include steps to reform and privatize state owned enterprises, enhance governance including in procurement and revenue administration, and to improve the business environment. The SMP also includes important safeguards to protect the country’s most vulnerable people.

The IMF said, “Risks to the SMP are high, including due to the materialization of two external shocks - the El Niño related drought impacting both agricultural production and electricity supply as well as the extensive damage caused by Cyclone Idai in March. The impact of these two shocks complicate an already difficult near-term economic outlook as the economy adjusts to the new policy regime. To mitigate the potential risks from capacity constraints, the IMF will support the authorities’ efforts in all policy areas covered by the SMP through tailored technical assistance.”

According to the IMF, after moving to full dollarization in late 2008 to break a period of hyperinflation, Zimbabwe’s fiscal deficits increased substantially during 2016–18, financed by the issuance of quasi-currency instruments nominally at par to the US dollar and the continued accumulation of external arrears.

The IMF said the fragile equilibrium was maintained through exchange controls and other restrictions on access to foreign exchange, providing a deep distortion for economic activity.