HARARE, June 6 (The Source) – The International Monetary Fund (IMF) says it is assessing the impact of Zimbabwe’s plans to introduce local bond notes, a measure that has caused a run on banks amid fears of the return to a local currency.
Zimbabwe expects its first loan since 1999 from the IMF later this year, after meeting targets under a 15-month IMF staff monitored programme, an informal agreement between a government and IMF staff to monitor implementation of economic reforms.
However, Zimbabwe’s response to a deep liquidity crunch now threatens what progress Zimbabwe has made, with companies reporting a sharp slowdown in businesses as spending collapses.
IMF deputy spokesman William Murray said on Friday the institution would engage Zimbabwe on its latest measure to introduce local bond notes, which are to circulate alongside a basket of foreign currencies.
“We are currently assessing the implications of the measures on the economy, including the more recently announced issuance of bond notes; and we’ll engage in further discussions with the authorities with regard to their strategies. So, we’re going to have more discussions with the Zimbabweans on this strategy,” he said at a press briefing in Washington.
Zimbabwe’s cash shortage is the result of weak external inflows and a decline in commodity prices, Murray said. The food import bill had made the situation worse, he added.
“More recently the situation has been aggravated by the drought afflicting Zimbabwe. The Government had to increase its food imports to mitigate the impact of crop failures on its people and the strengthening of the multi-currency system through the conversion of export earnings to euro and rand.”
The Reserve Bank of Zimbabwe (RBZ) has drawn criticism for its handling of the cash crisis. Governor John Mangudya announced the introduction of the bond notes on May 4 which are scheduled to start circulating in October, saying they were part of a package of measures to boost exports and increase cash inflows.
However, a strong public backlash has seen RBZ make at least three subsequent tweaks on the measures, further denting confidence. The five-month gap between the bond notes announcement and their planned October introduction has also left banks open to a run on deposits by clients who fear the return of a local currency unit, despite RBZ’s assurances this would not happen.