Lagarde approves IMF economic programme for Zimbabwe

Harare – IMF managing director, Christine Lagarde has approved a Staff Monitored Programme to support Zimbabwe’s new currency and other economic reforms, although the institution said the country’s currency reform measures have added “significant uncertainty” to the country’s inflationary and interest rate outlook.

The Staff Monitored Programme (SMP) runs from May 15, 2019 to March 15, 2020, the IMF said on Friday. The institution highlighted that “economic policies under the SMP emphasise the restoration of macroeconomic and financial sector stability.”

The program underpins Zimbabwe’s bid for a “large fiscal adjustment” programme, the elimination of central bank financing of the fiscal deficit as well as the “adoption of reforms to allow the effective functioning of market-based foreign exchange and debt markets”.

Among the reforms include privatising state-owned enterprises which have been a drain on the fiscus, enhancing governance – especially in the areas of procurement and revenue administration. There will also be reforms to improve the business environment.

“The SMP also includes important safeguards to protect the country’s most vulnerable people,” the IMF said. This comes following mounting pressure and opposition to the government’s austerity measures which have brought on more taxes and a drop of subsidies, among other things.  

Permanent secretary at the finance ministry, George Guvamatanga, has said the government will institute measures to protect the poor and vulnerable. This includes subsidising public transport in light of fuel price hikes following the liberalisation of petroleum import financing.

The IMF however notes that Zimbabwe remains in debt distress, with external arrears of $5.7bn (about R83bn) at the end of 2017. This was preventing access to “new financing from the IFIs (international financing institutions) and limiting access to external financing to non-traditional official and commercial creditors”.

One of the major worries for the IMF regarding Zimbabwe is the fact that the country’s currency reforms have added significant uncertainty to the outlook for inflation and interest rates, as well as the level of GDP at the new domestic currency.

“These large uncertainties make it particularly difficult to assess the public debt outlook at present, but the expectation is that an updated debt sustainability analysis will be conducted at the first review of the SMP,” the IMF said. 

The IMF noted the administration of President Emmerson Mnangagwa is committed to addressing the macroeconomic imbalances dogging the economy as well as removing structural distortions to facilitate a resumption in growth.