Government and the International Monetary Fund have reached an agreement on macroeconomic policies and structural reforms that can underpin a Staff Monitored Programme.
The IMF said on Wednesday that the SMP, which will be monitored on a quarterly basis, aims to implement a coherent set of policies that can facilitate a return to macroeconomic stability.
Team leader, Gene Leon, said Zimbabwe is facing deep macroeconomic imbalances, with large fiscal deficits and significant distortions in foreign exchange and other markets, which severely hamper the functioning of the economy.
He, however, said successful implementation of the SMP will assist in building a track record and facilitate Zimbabwe’s re-engagement with the international community.
In a show of confidence in Government’s economic policies, Leon said the policy agenda to be monitored under the SMP is anchored on the authorities’ Transitional Stabilisation Programme and emphasises fiscal consolidation.
Government is using the transitional stabilisation programme in a bid to set the economy on a recovery path after years of stagnation.
The programme, which runs from October 2018 to December 2020, was announced by Finance and Economic Development Minister Mthuli Ncube in October last year.
Other issues that will also be monitored under the SMP include the elimination of central bank financing of the fiscal deficit. This comes as the country’s ballooning debt overhang was also driven by significant increase in Government overdraft at the RBZ, from US$1,4 billion in December 2017 to US$2,5 billion by September 2018.
To reduce reliance on central bank overdrafts and domestic borrowing, Government committed itself, through the Transitional Stabilisation Programme, to contain budget deficits as part of fiscal consolidation.
The SMP will also focus on adoption of reforms that allow market forces to drive the effective functioning of foreign exchange and other financial markets. The country’s foreign exchange interbank market is going through some teething problems with little funds flowing into the system.
‘‘In addition, the agreed policies – both macroeconomic and structural – can be expected to remove critical distortions that have held back private sector growth and to improve governance,’’ Leon said.
An SMP is an agreement between country authorities and Fund staff to monitor the implementation of the authorities’ economic programme.
SMPs, however, do not entail endorsement by the IMF Executive Board.
It will, however, help to build an adequate track record of performance as the basis for a potential Fund-supported programme.