Published by the government of Zimbabwe
30 October 2009
Harare — THE International Monetary Fund has praised Zimbabwe for the way it is rapidly rebuilding the economy but has advised Government to budget for the Reserve Bank of Zimbabwe as part of efforts to ensure lasting stability and confidence in the country's financial sector.
This recommendation comes against the background of the RBZ having operated for 10 months since January this year without reserves of working capital, which would have to be provided by the Government.
In its advice to Government, the IMF is understood to have observed that the "incomprehensible" non-funding of the RBZ led to the undesirable scenario where the central bank, on some occasions, had to rely on part of statutory reserves from the commercial banks to keep the electronic payments system running, among other critical requirements.
This came as the IMF registered a vote of confidence in the economy, saying a 3 percent growth would be achieved by year-end. An IMF team that was in the country from October 14 to 26 said Zimbabwe was on the right track in its efforts to rebuild the economy.
"The economy has begun to recover in 2009, albeit from a low base. Since early 2009, the Government has broadly adhered to cash budgeting, achieved a significant improvement in budget revenue, established a multi-currency system, and largely liberalised prices and the exchange system. As a result of these improved policies, real GDP is projected to grow by about 3 percent," said head of delegation Vitaliy Kramarenko in a statement on the mission.
However, the IMF is also understood to have been critical of the delay by the Government in coming up with a new RBZ board, particularly given the hype earlier in the year about the need to resolve what were seen as "governance problems" relating to the RBZ board and its composition.
RBZ Governor Dr Gideon Gono yesterday confirmed that the IMF sympathised with the precarious financial status of the central bank which did not allow monetary authorities to carry out their critical function of being lender of last resort to the banking sector in order to smooth the daily payments system.
"We submitted our operational budgets to Government early this year, but for one reason or another we had to go for 10 months without funding from Treasury," said Dr Gono.
"We were indeed in full agreement with the IMF that usage of statutory reserves for central bank operations was not good at all and, this is why repeatedly we have been calling on Government to meet their statutory obligation of funding the RBZ's operations," said Dr Gono.
He was quick to point out that plans were already underway to ensure that the portions of statutory reserves inevitably used would be funded before the end of the year, paving way for possible reduction in the statutory reserves levels to boost liquidity in the market.
A large part of this year has been characterised by a series of fights between the Minister of Finance Tendai Biti and Dr Gono, which many commentators have deplored as "unfortunate and non-productive".
The central bank has not been receiving funding from Treasury at a time when all other sources of funding to the RBZ had dried up, following Government's move to do away with export surrender requirements.
In any economy, adequate funding for the central bank is critical in giving overall stability and confidence in the financial sector.
Asked about IMF's stance on the usage of the US$510 million fund, the bulk of which was released in August, Dr Gono said: "All I can confirm is that they told us categorically that the longest it would take for Zimbabwe to access the money upon submission of a withdrawal request is seven working days.
"We, therefore, lost two months through internal misunderstandings among us. I am, however, pleased that all this is water under the bridge and we are forging ahead more objectively as a unified team on the IMF issues," said Dr Gono.
The IMF team, which was in the country to review progress in the implementation of the Short-Term Economic Recovery Programme (STERP) and assist in the preparation of the draft 2010 budget and the underlying macro-economic framework, held meetings with Minister Biti, Economic Planning and Investment Promotion Minister Elton Mangoma, Dr Gono, and other senior Government officials.
It also met with representatives of the financial, business, and diplomatic communities.
As part of its recommendations, the IMF underscored the need for comprehensive tax reforms in the country to boost the overall revenue performance of the fiscus.
"The key challenge going forward is to build the necessary support for policies that would ensure sustainability of the nascent economic recovery and improvements in living conditions for Zimbabweans," said Mr Kramarenko.
IMF would continue to provide policy advice and targeted technical assistance.
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