ZIMBABWE’S economic landscape continues to display resilience amidst ongoing challenges of currency volatility and soaring inflation, according to the IMF, as announced on Wednesday.
Despite anticipations of a growth slowdown to about 3.25 percent in 2024, attributed to adverse effects from drought impacting agricultural output and a downturn in commodity prices, the IMF, following a two-week staff visit to Zimbabwe, projects sustained robustness driven by resilient remittance flows.
‘The Zimbabwean economy has shown remarkable resilience in the face of significant challenges,’ remarked the IMF representative leading the delegation. ‘While we anticipate a slight deceleration in growth, the economy continues to demonstrate adaptability and strength, particularly in key sectors such as agriculture and mining.’
The IMF’s statement acknowledges Zimbabwe’s 5.3 percent economic growth in 2023, largely propelled by expansions within the agricultural and mining sectors. Notably, the IMF underscores the critical role of remittances in buttressing liquidity within the dollarized segment of the economy, thereby bolstering domestic trade, services, and construction activities.
However, the IMF also highlights the intensification of local currency instability, with a significant depreciation of the official exchange rate by about 95 percent since December 2023. Such instability, coupled with soaring Zimbabwean dollar (Z$) inflation, continues to weigh on market sentiment and poses challenges for the formal sector due to ongoing exchange rate restrictions.
‘The current currency instability is a cause for concern,’ noted an economist from a leading think tank. ‘It creates uncertainty for investors and businesses alike, hindering long-term planning and investment.’
The IMF criticises Zimbabwe’s prescription of a narrow margin for retailers using the Z$ exchange rate, arguing it fosters informality, diminishes the tax base, and undermines long-term growth prospects.
In response, Zimbabwean Finance Minister Mthuli Ncube disclosed the government’s contemplation of pegging the exchange rate to assets like gold to ensure currency stability.
Furthermore, the IMF emphasises the urgency for Zimbabwe to address its substantial external debt burden to facilitate sustainable development. Zimbabwe’s pursuit of a new Staff Monitored Programme (SMP) is seen as a crucial step towards stabilizing efforts and re-engaging with the global financial community.
‘The SMP represents an opportunity for Zimbabwe to demonstrate its commitment to fiscal discipline and structural reforms,’ stated the IMF spokesperson. ‘It is imperative for Zimbabwe to address its debt overhang to unlock access to international financial support and pave the way for sustainable economic growth.’
The IMF underscores the necessity for international re-engagement, highlighting the Structured Dialogue Platform as pivotal for achieving debt sustainability and accessing concessional external financing.
However, the IMF clarifies its current inability to extend financial support to Zimbabwe due to its unsustainable debt situation. Any future financial arrangement would necessitate a comprehensive restructuring of Zimbabwe’s external debt, alongside a reform strategy aligned with macroeconomic stability, inclusive growth, poverty reduction, and enhanced economic governance, the IMF concludes.