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Zimbabwe’s currency crisis deepens as IMF calls for more reforms

HARARE – Zimbabwe is facing a worsening currency crisis as the International Monetary Fund (IMF) has urged the country to take further steps to liberalise its foreign-exchange market and restore macroeconomic stability.

The IMF said the recent measure by authorities to establish an interbank market was welcome, but not enough to address the volatility and divergence of the official and unofficial exchange rates.

The Reserve Bank of Zimbabwe (RBZ) last week said it would pursue a “market-determined” exchange rate instead of reliance on a weekly auction, but it stopped short of free-floating its local dollar, which it reintroduced in 2019 after a decade of dollarization3. The RBZ said it would maintain “parameters” such as setting the floor price for dollar sales and selling foreign currency to banks for onward sale to their clients1.

The move has failed to stem the depreciation of the Zimbabwe dollar, which trades on the interbank market for 5,487 per US dollar, while black market rates range between 6,200 to 6,700 Zimbabwe dollars per greenback. The currency crisis has fueled inflation and triggered price hikes on basic goods, eroding the purchasing power of ordinary Zimbabweans.

The IMF said a convergence of the official and unofficial exchange rates was possible if the authorities accelerated the liberalization of the foreign-exchange market, addressed the RBZ’s quasi-fiscal operations to mitigate liquidity pressures and maintained an appropriately tight monetary policy stance1.

Zimbabwean President Emmerson Mnangagwa, who came to power after a military intervention in 2017, is trying to revive an economy ruined by hyperinflation and mismanagement under his predecessor Robert Mugabe. Mnangagwa’s government last month agreed a staff-monitored program with the IMF, whereby the fund will help Zimbabwe implement coherent economic policies1.

However, analysts are skeptical that the latest currency reforms will be a quick fix for the deep problems that have constrained economic growth in the southern African country. They say Zimbabwe does not have enough foreign-currency reserves to back its local dollar, and there is nothing stopping the RBZ from printing money as it has done in the past. They also warn that banning the use of currencies such as the US dollar and South African rand could create panic among consumers and businesses2.