Zimbabwe’s economic prospects are under significant threat due to governance weaknesses and pervasive corruption, warns the International Monetary Fund (IMF). These issues present substantial risks to the country’s macroeconomic stability and performance.
An IMF staff team, led by Wojciech Maliszewski, conducted a mission to Harare from June 18 to 27, 2024, for the Article IV Consultation. Maliszewski issued a statement at the end of the mission, highlighting the challenges undermining Zimbabwe’s economic performance.
“The mission discussed structural reforms aimed at improving the business climate, strengthening economic governance, and reducing corruption vulnerabilities,” Maliszewski said. “Zimbabwe’s economic governance has significant weaknesses, and corruption poses risks to macroeconomic performance. Addressing these weaknesses remains key for promoting sustained and inclusive growth.”
Corruption is widespread in virtually all sectors of Zimbabwe’s economy. Currently, the Zimbabwe Electoral Commission (ZEC) is embroiled in a scandal involving Wicknell Chivayo, Mike Chimombe, and Moses Mpofu. The trio allegedly secured a dubious $40 million tender from ZEC to supply election materials ahead of last year’s controversial polls.
Despite these headwinds, the IMF noted that Zimbabwe’s economy shows resilience. However, growth is expected to slow to about 2% in 2024, down from 5.3% in 2023, as the country faces a devastating El Niño-induced drought. Higher import bills are also worsening the balance-of-payments outlook. Nonetheless, growth is anticipated to rebound strongly in 2025 to about 6%, supported by a recovery in agriculture and ongoing capital projects in manufacturing.
To achieve price stability, the mission suggested stabilizing the Zimbabwe Gold (ZiG) nominal exchange rate against a suitable basket of currencies. This stabilization can be achieved by controlling base money growth.
“The exchange rate should be determined in a deeper market to provide relevant information for monetary policy decisions. This requires identifying and removing any remaining impediments to the functioning of the FX (foreign currency exchange) market to promote price discovery,” the statement said.
Closing the fiscal financing gap is essential for sustainable currency stabilization. The transfer of past debt obligations related to the Reserve Bank of Zimbabwe’s (RBZ) quasi-fiscal operations (QFOs) to the Treasury was an important step to strengthen financial discipline.
The mission also welcomed enhanced coordination between the RBZ and the Finance Ministry on macro-policies and liquidity management. However, the mission assessed that the cost of servicing the QFO-related debt and treasury bills, combined with weaker-than-expected revenues and drought-related spending, opened a sizeable financing gap in the 2024 budget.
“The financing gap would need to be closed in a way that does not undermine the monetary policy stance,” it noted. “The mission is encouraged that work to identify such measures is ongoing and stands ready to provide support to the authorities as needed.”
The IMF emphasized that a strengthened governance framework for the newly constituted Mutapa Investment Fund would be key for stabilization efforts.
The IMF’s report underscores the urgent need for structural reforms to address governance and corruption issues in Zimbabwe. These reforms are vital for fostering a stable economic environment and promoting sustained, inclusive growth. Without addressing these fundamental weaknesses, Zimbabwe’s economic future remains uncertain.
Zimbabwe must take decisive action to combat corruption and improve governance to ensure long-term economic stability and growth. The international community, including the IMF, remains committed to supporting Zimbabwe in these efforts. However, the responsibility ultimately lies with Zimbabwe’s leadership and institutions to implement the necessary changes.
Zimbabwe’s economic challenges are deeply rooted in governance and corruption issues. Addressing these problems is crucial for achieving macroeconomic stability and sustainable growth. The IMF’s mission to Zimbabwe has highlighted the urgent need for reforms and the importance of international support in this endeavor. As Zimbabwe navigates these challenges, the path to a stable and prosperous future hinges on its ability to implement effective governance and anti-corruption measures.
Source: The Standard
