• Mon. Jul 22nd, 2024

IMF Slams Zim’s Economic Governance, Corruption Risks Macroeconomic Performance


Jun 28, 2024

By ETimes 

HARARE – The International Monetary Fund (IMF) has expressed concerns over Zimbabwe’s economic governance, citing significant weaknesses and corruption risks that pose a threat to macroeconomic performance.

One of the biggest barriers to long-term, sustainable economic development and progress is corruption. 

There are other obstacles that have arisen, despite the government’s demonstration of political intent through the establishment of a national anti-corruption organisation.

Transparency International’s 2023 Corruption Perceptions Index ranks Zimbabwe as the 149th least corrupt country in the world out of 180. Zimbabwe’s corruption rank had an all-time high of 166.00 in 2008 and a record low of 43.00 in 1998, with an average of 129.65 from 1998 to 2023.

“The mission discussed structural reforms aimed at improving the business climate, strengthening economic governance, and reducing corruption vulnerabilities. 

“Zimbabwe’s economic governance has significant weaknesses and corruption poses risks to macroeconomic performance.

“Addressing these weaknesses remain key for promoting sustained and inclusive growth,” said Wojciech Maliszewski, IMF staff team leader.

It comes as the inflation-ravaged Zim dollar was replaced on April 5 by Zimbabwe Gold, or ZiG, a new gold-backed currency.

 ZiG has become part of a range of currencies that are recognised as legal money in Zimbabwe, where the US dollar now accounts for more than 80% of all transactions.

“The ZiG official exchange rate has so far remained stable, ending a bout of macroeconomic instability in the first 3 months of the year (when the Zimbabwean dollar depreciated by about 260 percent). 

“Assuming that macro-stabilisation is sustained, cumulative inflation in the remainder of the year is projected at about 7 percent,” Maliszewski said.

The mission urges more improvements to the policy framework and applauds the progress in monetary policy discipline.

“Price stability would be best achieved by stabilising the ZiG nominal exchange rate against a suitable basket of currencies (accounting for the dominant role of the USD in the economy). 

“This could be in turn accomplished by controlling base money growth: for now through unremunerated non-negotiable certificates of deposit (NNCDs), but over time through indirect (interest-rate-based) monetary instruments to increase the attractiveness of the new currency.  

“The exchange rate should be determined in a deeper market to provide relevant information in the decision regarding the monetary policy stance, which would require identifying and removing any remaining impediments to the functioning of the FX market to promote price discovery,” he said.

Recently, the African Development Bank (AfDB) revised its gross domestic product growth projection for Zimbabwe in 2024 to a slower two percent, down from the 3.2% it predicted at the beginning of the year.

This is attributed to the impact of the El Nino induced drought and softening commodity prices.

“Despite headwinds, Zimbabwe’s economy continues showing resilience. Growth is expected to decelerate to about 2 percent in 2024 (from 5.3 percent in 2023), as the country faces a devastating El Niño-induced drought. 

“Higher import bills are also worsening the balance-of-payments outlook. But growth is expected to recover strongly in 2025 to about 6 percent, supported by a rebound in agriculture and ongoing capital projects in manufacturing,” he said.

The mission also emphasised the need to close the fiscal financing gap, strengthen the governance framework for the Mutapa Investment Fund, and implement structural reforms to improve the business climate and reduce corruption vulnerabilities.

Under Article IV of the IMF’s Articles of Agreement, the IMF holds annual bilateral discussions with its members. 

A team from the IMF will visit the country to assess economic and financial developments and hold meetings with government and central bank officials.

Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF’s Executive Board for discussion and decision.

By ETimes

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