Zimbabwe needs to accelerate structural reforms to solve liquidity shortages: IMF

Source: Zimbabwe needs to accelerate structural reforms to solve liquidity shortages: IMF | The Financial Gazette January 26, 2017

ZIMBABWE’S liquidity shortage is due to an unfinanced external position that reflects an expansionary policy and un-competitiveness and policy action is needed to reduce the budget deficit; accelerate structural reforms; and re-engage with the international community to access much needed financial support, the International Monetary Fund has said.
In emailed responses to FinX, the IMF said more reforms were needed to deal with the foreign currency shortages. “As we have said before, policy action is needed to reduce the budget deficit; accelerate structural reforms; and re-engage with the international community to access much needed financial support.
“All the elements in this three-pronged approach are essential to place the economy on a sustainable footing and lay the groundwork for growth and poverty reduction. Without reforms, risks are increasingly on the downside,” said the IMF.
The institution added that bond notes, which are supporting an export incentive scheme, can provide relief in the short-term, but will not address underlying foreign currency shortages.
Zimbabwe established a US$200 million foreign exchange and export incentive facility which is supported by the African Export-Import Bank to provide an incentive facility of up to five percent on all foreign exchange receipts. The facility is granted to qualifying foreign exchange earners in bond coins and notes in order to mitigate against possible abuses of this facility through capital flight.
To date, the monetary authorities have injected bond notes worth US$73 million in the economy through the issuance of US$1 and US$2 denominations. The monetary authorities are also planning to introduce a US$5 bond note before the end of the first quarter.
“The authorities started to introduce bond notes in November as a means of alleviating the severe liquidity shortage that has been hindering economic activities. This liquidity shortage is due to an unfinanced external position that reflects an expansionary fiscal policy and limited structural reforms to promote competitiveness.”
The IMF also cautioned on the sustainability of the bond notes, saying: “In this context, the issuance of bond notes in limited amounts in the short-term could relieve some liquidity pressure, but will not address the underlying causes of the foreign exchange shortages.” – FinX