February 17, 2006

Government prints trillions to pay IMF

Government has printed a staggering ZIM$21 trillion to buy foreign currency to pay off International Monetary Fund (IMF) arrears, Reserve Bank governor Gideon Gono has made public. The move, which will avert expulsion but not avail much-needed balance-of-payments support, is set to stoke inflation and push the local currency against the wall. According to Gono said printing money and resultant broad money supply growth was the major driver of inflation in 2005 and has spilled over into the current year. He said the country had no choice but to print money to pay its IMF arrears. Printing of money fuels broad money supply growth which, together with the yawning 8,6% budget deficit and other factors such as state borrowing, is the major cause of inflation.
Broad money supply growth has been on a sharp upward trend, from 177,6% in January to 411,5% in November last year. Inflation this week surged to 613,2% for January from the December rate of 585,8%. "The collectivity of Zimbabweans must realise that this high growth in money supply was occasioned by printing of ZIM$21 trillion to buy foreign currency to pay the IMF," Gono said. He said there was no budget for the IMF payment in the 2006 financial year and the money could also not be feasibly absorbed in a single fiscal year "without imposing a perilous squeeze on critical public sector services".
Gono's disclosures effectively settle the question of where the government got the foreign currency to pay the IMF. Zimbabwe has paid a total of US$210,6 million to the IMF in recent months. This sparked a storm of controversy with accusations by some businessmen that the money was seized from corporate foreign currency accounts.
South Africa-based tycoon Mutumwa Mawere accused the central bank of raiding his nationalised companies to pay the IMF. Zimbabwe has also made a further payment of US$9 million to the IMF to settle its remaining overdue financial obligations to the General Resources Account (GRA). However, Zimbabwe still has substantial overdue obligations to the Poverty Reduction and Growth Facility (PRGF)-Exogenous Shocks Facility Trust (ESF) amounting to US$119 million. "The clearance of GRA arrears by Zimbabwe has no effect on the application of the Fund's procedures for the treatment of outstanding arrears to the PRGF-ESF Trust," the IMF said. "Zimbabwe, therefore, remains excluded from the list of PRGF-eligible countries."
Although the debt payment will guarantee that Zimbabwe will not be expelled from the IMF, it will not get critically needed balance-of-payments support. The IMF board will in March look into the other sanctions against Harare which include the suspension of Zimbabwe's voting and related rights, ineligibility to use fund resources under the GRA and declaration of non-cooperation, as well as suspension of technical assistance. Zimbabwe was on September 24 2001 declared ineligible to use the general resources of the IMF, and removed from the list of countries which could borrow resources under the PRGF due to non-payment. (Zimbabwe Independent, Harare)

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