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IMF funds to power Zimbabwe's economic agenda

by Staff reporter
29 Aug 2021 at 07:07hrs | Views
The US$961 million boost received from the International Monetary Fund (IMF) last week will give impetus to the country's economic programmes guided by the five-year National Development Strategy 1 (NDS1) and help anchor the prevailing macroeconomic stability and boost confidence, officials and market watchers have said.

The money is part of US$650 billion Special Drawing Rights (SDRs) the multilateral lender allocated to its members to provide additional liquidity to cushion against the fallout from the coronavirus pandemic.

SDRs are reserve assets issued by the IMF and are backed by dollars, euros, yen, sterling and yuan.

The country will use part of the funds to support productive sectors, including manufacturing, mining and agriculture, as well as infrastructure development.

With Zimbabwe experiencing economic stability, underlined by inflation and exchange rate stability, the money will buttress the current growth momentum, stimulate NDS1 programmes and support the drive to create a prosperous society by 2030.

NDS1 (2021-25) was launched last year.

"The facility from the IMF came at a right time when Zimbabwe is implementing the National Development Strategy 1," Professor Gift Mugano told The Sunday Mail Business.

"It will give momentum to the NDS1 and help sustain the prevailing macroeconomic stability."

The Reserve Bank of Zimbabwe introduced the foreign currency auction system on June 23, which has managed to stabilise the exchange rate.

Stabilising prices and the exchange rate has seen inflation slowing from a post-dollarisation record of 837,5 percent in July 2020 to 50,24 percent in August this year.

Annual inflation is forecast to decline to between 22 percent and 35 percent by December, slightly higher than the initial targets of 10 percent and 15 percent.

Prof Mugano said the Government should prioritise value addition and beneficiation to boost the country's export potential to earn more foreign currency.

"There are a number of pillars which need to be supported by this money; one of them around value addition and beneficiation.

"We need to transform our economy from an extractive-oriented economy, which is relying on primary sectors; exporting raw materials like what we are doing.

"That situation requires us to invest in new plants, which will be used for value adding primary commodities.

"There should be a revolving fund for retooling and setting up of new industries to support the thrust of value addition and beneficiation," he said, adding that there now was a good business case for transforming the mandate of the Industrial Development Corporation (IDC) to a development finance institution to manage some of the funds.

Such an institution can then be used as a vehicle to provide cheap loans to companies in key and strategic industries needing new machinery, funding start-ups and trade finance to support companies penetrating export markets.

"It's a lot of money if we are prudent enough and if we have good priority mechanisms of allocation.

"Government also needs to set aside money to build up reserves that will be used to attend to critical shocks and to sustain the stability that we have," he said.

RBZ Governor Dr John Mangudya said contrary to reports that the bulk of money will go towards paying off some of the country's external debts, the funds will largely be spent on productive sectors of economy and have come at a time the "economy is growing and will buttress the current growth momentum".

"This money is not to close any gap but to shore up the economy," said Dr Mangudya.

"It will enhance confidence, increase productivity, thus stabilising prices and inflation."

Minister Ncube said Zimbabwe would create revolving facility for low-priced loans backed by the SDRs to support key productive sectors.

Without disclosing how much each sector would be allocated, Prof Ncube said a "sizeable amount" will be channelled to support horticulture, irrigation, critical value chains in the manufacturing industry, as well as small-scale gold miners.

A revolving loan facility is a form of credit issued by a financial institution that provides the borrower with the ability to draw down or withdraw, repay, and withdraw again.

It is considered a flexible financing tool due to its repayment and re-borrowing accommodations.

Professor Ncube said revolving facilities will help unlock credit to the private sector.

He said it was critical to invest in agriculture "to climate-proof our farmers" and to equip small-scale miners with machinery so that they can produce more.

Small-scale miners account for about 60 percent of Zimbabwe's gold output but lack the necessary equipment to maximise production.

In terms of the manufacturing sector, the revolving facility "will target areas where we fill in the gaps in the value chains".

The Government has already developed value chain strategies for sub-sectors, including in leather, cotton, dairy, pharmaceutical and steel to boost production and create jobs.

Investments in infrastructure will target projects to eradicate poverty such as roads and housing.

"More decent jobs will be created and this will lift people's standards of living," Carlos Tadya, an analyst with a local asset management company.

Source - sundaymail