The International Monetary Fund (IMF) has implored Zimbabwe to end the central bank’s quasi-fiscal activities among a raft of reforms to “fully restore macroeconomic stability”.
The Reserve Bank of Zimbabwe (RBZ) stands accused of engaging in activities that are supposed to be done by the Treasury.
Quasi-fiscal activities were blamed for fuelling hyperinflation in the period 2006 to 2008. This accelerated the depreciation of the local currency, paving the way for the introduction of the multi-currency regime in 2009.
In its report after an IMF staff visit in the period October 18 to 25, the global lender said economic policy reforms identified in previous Article IV consultations have not been implemented.
“First, comprehensively addressing the RBZ’s quasi-fiscal operations (QFOs) remains imperative to mitigate liquidity pressures and thus re-anchor inflation expectations. These measures should be complemented with an enhanced liquidity management framework, including through theuse of appropriate interest-bearing instruments by the RBZ to mop up excess liquidity,” IMF said.
RBZ has introduced gold coins and digital tokens to mop up excess liquidity in the market. The IMF has been against the issuance of gold coins and instead proposing the introduction of “appropriate interest-bearing assets”.
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It said the consolidated fiscal stance, including QFOs, should be aligned with the short-term stabilisation objectives.
“Third, there is an urgent need to accelerate the FX market reform, by allowing more flexibility in the official exchange rate through a more transparent and market-driven price discovery; removing the restrictions on the exchange rate at which banks, authorised dealers, and businesses can transact; and further minimising export surrender requirements,” IMF said.
The RBZ said this week that it was removing the 10% trading margin above the interbank rate as it fine-tunes and further liberalises the foreign exchange market.