Following a staff visit, the International Monetary Fund (IMF) urged Zimbabwe to expedite currency changes, stating that the country’s authorities have to shift toward a market-driven exchange rate and eliminate existing distortions.
As part of Zimbabwe’s efforts to re-engage with the international financial community by showcasing a history of strong economic policies, the visit covered the country’s proposal for an IMF staff-monitored program.
Because of arrears in its debt payment to lenders such as the World Bank, the African Development Bank, and the European Investment Bank, Zimbabwe has been unable to obtain financing from organizations such as the IMF for over 20 years.
“The IMF is currently precluded from providing financial support to Zimbabwe due to its unsustainable debt situation … and official external arrears,” the IMF said in a statement.
“An IMF financial arrangement would require a clear path to comprehensive restructuring of Zimbabwe’s external debt, including the clearance of arrears and a reform plan that is consistent with durably restoring macroeconomic stability.”
Zimbabwe’s central bank and finance ministry have said they are working on measures to stabilise the Zimbabwean dollar, which has fallen about 40% against the U.S. dollar since the start of the year.
One option being considered is linking the exchange rate to assets such as gold.
The IMF said policymakers should eliminate a restriction on the 10% allowable trading margin for pricing domestic transactions and narrow the central bank’s legal mandate to core functions.
Addressing a joint press conference with the IMF, Zimbabwe’s Finance Minister Mthuli Ncube said officials agreed the local currency needed to be more reflective of market conditions.
The Zimbabwean dollar was relaunched in 2019 after a decade of dollarisation, but it rapidly lost value and the use of foreign currencies in domestic transactions was reauthorised soon after.
Central bank Governor John Mangudya said the focus of an upcoming monetary policy statement would be stabilising the exchange rate
