HARARE, Feb. 14 (Xinhua) -- Economic activity in Zimbabwe continues to show resilience in the face of currency instability and high inflation, the International Monetary Fund (IMF) said Wednesday.
While growth is expected to decelerate to about 3.25 percent in 2024 due to the impact of drought on agricultural production and lower commodity prices, remittances will likely remain strong and offset the anticipated reduced foreign currency inflows, the IMF said in a statement at the conclusion of a two-week staff visit to Zimbabwe.
Zimbabwe's economy grew by 5.3 percent in 2023 on the back of an expansion in agriculture and mining.
The IMF said the improved remittances should support liquidity in the dollarized part of the economy, sustaining growth in domestic trade, services, and construction.
The IMF, however, noted that local currency instability in the country has intensified over the past few months, with the official exchange rate depreciating by about 95 percent since the beginning of December 2023.
"The gap to the parallel market rate remains wide (above 30 percent), and Zimbabwean dollar (ZWL) inflation is still very high. This instability weighs on sentiment, while exchange rate restrictions continue to be a burden on the formal sector," the IMF said.
The Zimbabwean government prescribes retailers using the ZWL exchange rate with up to a 10 percent margin, a scenario that the IMF said promotes informality, erodes the tax base, and undermines longer-term growth prospects.
Zimbabwean Finance Minister Mthuli Ncube said Monday the government is considering linking the exchange rate to assets such as gold to maintain currency stability.
The IMF noted that Zimbabwe needs to resolve its huge external debt overhang to guarantee sustainable development. Zimbabwe has already requested a new Staff Monitored Program (SMP) to support its stabilization efforts and re-engagement with the international community.
The IMF said the two-week staff mission was a step in the preparations for the SMP.
"International re-engagement remains critical for debt resolution and access to financial support. In this context, the authorities' re-engagement efforts, through the Structured Dialogue Platform, are key for attaining debt sustainability and gaining access to concessional external financing," the IMF said.
The IMF is currently precluded from providing financial support to Zimbabwe due to its unsustainable debt situation.
According to the IMF, any financial arrangement with Zimbabwe would require a clear path to a comprehensive restructuring of Zimbabwe's external debt, including the clearance of arrears and a reform plan that is consistent with durably restoring macroeconomic stability, enhancing inclusive growth, lowering poverty, and strengthening economic governance. ■