Zimbabwe Receives IMF’s SDR Funds
Zimbabwe received $961 million as a special drawing right (SDR) from the IMF. The funds are part of the IMF’s $650 billion of reserve assets that will be disbursed and used to boost global economic confidence and stability. This move is crucial for economies after the downturn due to the coronavirus pandemic. Specifically, the reserves are available to all 190 fund members; 70% of the funds will go to the 20 largest economies and 3% to low-income nations.
Zimbabwe’s Strategy to Utilize Financial Assistance
The government plans to use part of the money to support its currency. In February 2019, the government abandoned its 1:1 rate because it was out of sync with the market, and the currency plummeted afterward. Moreover, the current administration runs an opaque auction system that values the money at approximately 86:1 while the black market values it at 160:1.
Finance Minister Mthuli Ncube said the country wants to use $500m of the fund to support the currency, and the remainder will be for buying vaccines, investing in schools, hospitals, roads, and other priorities. He also plans to create a revolving loan facility for the mining and agriculture sector.
The Fragile Economy
For decades, the Zimbabwean economy had been in the doldrums before the pandemic, mainly due to fiscal and monetary policy misfires. In a statement in 2020, the IMF said, “uneven implementation of reforms, notably delays and missteps in [foreign exchange] and monetary reforms, have failed to restore confidence in the new currency.»
The global shutdowns aggravated an already falling economy. In July of 2020, the inflation rate peaked at over 800%, compared to the year-on-year 348.5%. The rate has been decelerating this year, with 56% in July and 50% in August. The Reserve Bank of Zimbabwe expects inflation to decline to 20% by year-end.
The dire economic circumstances have increased the level of unemployment and eroded incomes. To ease social and political tensions, the government is pushing necessary actions for an economic turnaround, and the SDR funds have certainly given it a chance.
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