IMF Advises Zimbabwe To Save Controversial Funds

The funds were given to all members of the IMF to cushion themselves to the effects of the global financial crisis.

The IMF funds has divided the unity government of President Robert Mugabe and Prime Minister Morgan Tsvangirai over how to use the funds, with the Finance Minister Tendai Biti saying they will incorporate the funds in the 2010 budget.

Biti said on Monday however that cabinet had now agreed on how to use the funds.

He said the article which appeared in the Herald last week Friday saying the central bank was empowered by the constitution to administer the IMF funds was not true.

"The law that deals with our relationship with the IMF and the World Bank is the International Financial Organisation Act number 40 of 1980.The law makes it very clear in sections 5 and 7 that the Ministry of Finance is the governor to both the boards of IMF and the World Bank. It is the Ministry of Finance that writes promissory notes or instructions to the IMF on how these SDRs (IMF funds) will be used," Biti added.

An IMF team led by Vitaliy Kramarenko, visited Zimbabwe between October 14 and 26 to review progress in implementation of the government’s Short-Term Economic Recovery Program (STERP).

"In light of Zimbabwe’s debt overhang and low-income status, the mission advises the authorities to seek sustained concessional donor financing in support of their medium-term growth and poverty reduction objectives rather than relying on non-concessional SDR-related funds,"IMF said.

"The SDR allocation provided an important one-off boost to Zimbabwe’s depleted international reserves, and should be saved. In the banking system, there is a need to step up supervisory efforts in monitoring liquidity and credit risks."

However, the IMF has already projected the economy to grow by three percent, commending the unity government.

"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," the IMF said.

"As a result of these improved policies, real GDP is projected to grow by about 3 percent. Credit expansion, led by post-hyperinflation remonetization and capital inflows, is supporting economic activity. However, it is also contributing to a large external current account deficit and increased credit and liquidity risks in the banking system."

The IMF urged the Zimbabwe political players divided after the disengagement of Tsvangirai’s party to work towards the development of the country and also to resolve governance issues at the central bank.

"Specifically, political consensus needs to be forged for continuing cash budgeting, exercising wage restraint while reorienting expenditures to developmental needs and priority social programs, resolving RBZ governance problems and restructuring its balance sheet, enforcing the property rights, and maintaining the rule of law," said the IMF.

"IMF staff will continue to provide policy advice and targeted technical assistance in the context of regular visits. Access to IMF lending facilities would require a sustained track record of sound policies and donor support for the clearance of arrears to official creditors."