Zimbabwe prioritises support for its battered currency

Zimbabwe will use more than half of the $961m allocated by the International Monetary Fund in the form of special drawing rights to support its beleaguered currency.  

The government abandoned a 1:1 peg between a precursor of the reintroduced Zimbabwe dollar and the greenback in February 2019. The currency now trades at 85.82 to the US dollar and even lower on the black market, a plunge that’s made it difficult for the government to get it accepted locally, and it’s generally not tradable outside the country.

“For the support of the currency we want to hold back about $500m” as reserves, finance minister Mthuli Ncube said in an interview on Tuesday.

The Southern African nation abandoned the Zimbabwe dollar in 2009 after inflation rose to 500 billion percent, according to the IMF, and legalised trade in a range of currencies including the dollar and the rand. The economy had tanked after a failed land-reform programme began in 2000 that saw the seizure of white-owned commercial farms and the subsequent collapse of export earnings.

Zimbabwe’s remaining SDRs will be used to support the acquisition of Covid-19 vaccines, investment in schools, hospitals and roads and other priorities, Ncube said. Revolving funds will also be set up to help manufacturers and mining companies buy new equipment, and to revive the horticulture industry by encouraging the cultivation of roses, macadamia nuts and blueberries, he said.

The IMF injected a record $650bn of reserve assets to build confidence and foster resilience and stability in the global economy in the wake of the devastation caused by the coronavirus pandemic. The reserves are allocated to all 190 fund members, with about 70% going to the 20 biggest economies, or G20, and just 3% to low-income nations. 

Zimbabwe won’t use any of its reserves to pay down the more than $8bn in external debt it owes, even though its arrears have effectively blocked it from borrowing more money from multilateral lenders.

Ncube also confirmed the government was considering borrowing money from private creditors to compensate the white farmers. Bloomberg first reported on the funding option on Aug. 16.

Farmers’ compensation

Zimbabwe has agreed to pay the farmers $3.5bn, half of which is due in July 2022, to settle the two-decade old dispute that’s soured relations with Western countries, including the US and the UK

“The idea is a special-purpose vehicle out of which we can then raise resources on the back of some escrowed tax revenues from specific sources that are ring-fenced,” Ncube said, adding that the tax could be in the form of mining royalties.

Zimbabwe exports platinum, gold, nickel and chrome. Another proposal under consideration is the local sale of a US dollar bond, he said. 

Bloomberg News. More stories like this are available on bloomberg.com