In a bid to address economic challenges and re-establish credibility in the international financial arena, Zimbabwe is being urged by the International Monetary Fund (IMF) to expedite currency reforms. Following a recent staff visit, the IMF emphasized the need for Zimbabwean authorities to transition towards a market-driven exchange rate and eliminate existing distortions in the currency system.
Discussions during the visit centered on Zimbabwe’s request for an IMF staff-monitored program, a crucial step for the Southern African nation to demonstrate its commitment to sound economic policies and re-engage with the global financial community.
Zimbabwe has faced difficulty in securing financing from institutions like the IMF for over twenty years, primarily due to outstanding debts to lenders such as the World Bank, the African Development Bank, and the European Investment Bank.
“The IMF is currently unable to offer financial assistance to Zimbabwe due to its unsustainable debt situation and official external arrears,” the IMF stated in a press release.
“Any financial arrangement with the IMF would necessitate a clear roadmap for comprehensive restructuring of Zimbabwe’s external debt, including the settlement of arrears, alongside a reform strategy aimed at achieving sustainable macroeconomic stability.”
Efforts to stabilize the Zimbabwean dollar, which has depreciated by approximately 40 percent against the US dollar since the beginning of the year, are underway. Authorities are considering various measures, including pegging the exchange rate to assets like gold.
The IMF recommended the removal of restrictions on the 10 percent allowable trading margin for domestic transactions and advocated for a more focused mandate for the central bank, concentrating on core functions.
During a joint press conference with the IMF, Zimbabwe’s Finance Minister Mthuli Ncube acknowledged the necessity for the local currency to reflect market realities.
The Zimbabwean dollar was reintroduced in 2019 after a decade of dollarization, but its value quickly eroded, leading to the reauthorization of foreign currencies for domestic transactions.
Central bank Governor John Mangudya emphasized that an upcoming monetary policy statement would prioritize measures aimed at stabilizing the exchange rate.
As Zimbabwe navigates its economic challenges, the IMF’s recommendations underscore the imperative for decisive action to address currency volatility and restore macroeconomic stability.