This comes after the IMF downgraded Zimbabwe’s gross
domestic products (GDP) growth performance for 2024 by 0,35 percentage points
to 3,25% owing mostly to the local currency’s depreciation.
The Zimdollar was officially trading at ZWL$6 104,72 to the
greenback on December 31, 2023 and had dropped to US$1:ZWL$11 906,91 by
Wednesday this week.
The local currency’s depreciation is blamed on a massive
increase in the money supply to fund government’s ZWL$60 trillion budget for
the year, an increase of slightly over 1 200% from the 2023 fiscal year.
According to the IMF, the increase in money supply is being
aggravated by quasi-fiscal activities at the central bank, which the government
has used to fund its bloated budgets.
“The mission encourages the authorities to accelerate the
FX (foreign exchange) market reform by promoting a more transparent and
market-driven price discovery in the official exchange rate and by removing
existing exchange restrictions and distortions,” IMF European department deputy
chief Wojciech Maliszewski said at a Press conference in Harare yesterday.
“In particular, the restriction on the 10% allowable
trading margin for pricing domestic transactions should be eliminated. The FX
market reform should be accompanied by establishing an effective framework for
exchange rate and monetary policies.”
He continued: “Establishing such a framework requires
careful preparations, including, among other steps, comprehensively addressing
underlying sources of fiscal pressures. The RBZ Act should be amended,
including to narrow its legal mandate to core functions.”
Maliszewski was speaking at the conclusion of a two-week
visit to Zimbabwe, where he and an IMF team were on a fact-finding mission to
develop a Staff-Monitored Programme (SMP) at the request of the government.
The idea to limit the RBZ’s role to just its core functions
was first espoused by renowned American economist, Steve Hanke, in September
2022.
Hanke argued that most of the official and parallel forex
markets currency distortion could be traced to the central bank’s quasi fiscal
activities which had contributed to a national debt of over US$20 billion.
Maliszewski, however, said economic activity in Zimbabwe
continued to show resilience in the face of currency instability and high
inflation.
“GDP growth is estimated at 5,3% in 2023, on the back of
expansion in agriculture and mining, and — buoyed by related foreign currency
inflows and by remittances — in the highly-dollarised domestic trade and
services.
“Growth is expected to decelerate to about 3,25% in 2024,
partly reflecting the impact of a drought on agriculture production and lower
commodity prices.
“These factors are also expected to reduce foreign currency
inflows, but remittance will likely remain strong, and the current account is
projected to be in small surplus,” Maliszewski said.
He noted that this should support liquidity in the
dollarised part of the economy, sustaining growth in domestic trade, services
and construction.
“The gap to the parallel market rate remains wide (above
30%); ZWL inflation is still very high. This instability weighs on sentiment,
while exchange rate restrictions (prescribing retailers to use the official ZWL
exchange rate with up to a 10% margin — inflating the US dollar prices)
continue to be a burden on the formal sector,” he said. Newsday
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