Thursday, August 18, 2022

Multicurrency system to provide anchor for stability in Zimbabwe

Although economic recovery in Zimbabwe remains fragile and domestic and external imbalances are building up, a visiting team of the International Monetary Fund (IMF) officials has observed that budget revenue has increased significantly, and therefore helped finance improved delivery of public services, while the fiscal position was broadly balanced.

The IMF Mission to Zimbabwe, which was led by Vitally Kramarenko to the one time breadbasket of Southern Africa early this month to conduct the 2010 Article IV consultation discussions, met with key officials of the National unity government and other important personalities.

Some of those consulted included Prime Minister Tsvangirai, Minister of Finance Tendai Biti, Minister of Economic Development Elton Mangoma, Reserve Bank of Zimbabwe Governor Gideon Gono, and other senior government officials, as well as representatives of the diplomatic and business communities, and civil society organizations and labour unions.

Basing on the outcome of the consultations with various stakeholders, Kramanenko made the point that there existed significant policy challenges that needed to be addressed without delay if thoroughgoing amends have to be effected to the present economic situation in Zimbabwe.

“In 2009, following a decade of economic decline and hyperinflation during 2007ÔÇô08, policies improved significantly. The multi-currency system adopted in early last year helped restore price stability, restart financial intermediation, and impose fiscal discipline by precluding the option of budget deficit monetization,” said the IMF envoy.

He added that price and exchange system liberalization improved allocation of resources and availability of goods in the domestic markets. Again, it was observed that in response to better policies, short-term capital inflows and Foreign Direct Investment (FDI) was shored up in 2009.
All these positive steps have supported a nascent economic recovery.

However, regarding fiscal policy, the government was urged to ensure that sufficient budgetary allocations are made to critically important infrastructure rehabilitation projects and social programs supporting vulnerable groups, while maintaining a fiscal stance consistent with macroeconomic stability.

To this end, Zimbabwean authorities were implored to watch their priorities in budgetary expenditures and that the central government wage bill needed to be reduced as a share of revenues, including through the elimination of what was described as ghost workers on account of the results of the on-going payroll audit.

It was nonetheless reassuring, according to the auditing mission, that the multi-currency system which the Government of National Unity has decided to maintain until 2012, will be able to provide a strong nominal anchor.

“Risks to the banking system are rising significantly and should be mitigated by stepping up prudential measures, including the strengthening of Reserve Bank of Zimbabwe governance through appointment of a governing Board composed of reputable members,” Kramanenko posited.

By the same token, need was highlighted, need for sanctioning of an operating budget for the reserve bank envisaging a significant downsizing and refocusing on core activities under the multi-currency system.

Meanwhile, on the political front there are concerns that, notwithstanding IMF’s observation of the fragility of the situation in that country, South African President Jacob Zuma, warned the parties in the “coalition” government that failure to get together, strike a balance and find a common ground on pertinent issues, otherwise the present impasse threatens gains so far made.

Zuma was in Zimbabwe last week to help President Robert Mugabe’s ZANU PF and MDC make peace and implement the Global Political Agreement, before the next general election in 2011.


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