March 10, 2006

IMF upholds sanctions / Inflation surges to record levels

The International Monetary Fund has announced that it would keep in place sanctions on Zimbabwe because of money still owed to the bank, and urged Harare to urgently implement reforms to stabilise its economy. The IMF executive board acknowledged that Zimbabwe had settled its General Resources Account (GRA) when it made a US$9m payment which helped the southern African nation retain its membership in the IMF. However, the board noted Zimbabwe has owed since February 2001 about $119m to the fund's Poverty Reduction and Growth Facility Exogenous Shocks Facility Trust Fund. In a statement the IMF board urged Harare "to continue its efforts to resolve the remaining overdue financial obligations," adding that Zimbabwe's voting rights at the fund will remain suspended. It said that another review of Zimbabwe's obligations will take place within six months. At the same time, the IMF said that Zimbabwe's economic crisis "calls for urgent implementation of a comprehensive policy package comprising several mutually reinforcing actions in the area of macroeconomic stabilisation and structural reforms."

In the meantime, Zimbabwe’s annual inflation rate vaulted to a record high in February, driven by a surge in rental, transport and education fees, blighting prospects of a quick recovery for country’s battered economy. The consumer price index rose by 782% year-on-year in February from 613,2% in January, the Central Statistical Office (CSO) said. The previous all-time high for the consumer price index (CPI) was 622,8% hit in January 2004. On a monthly basis, the CPI rose 27,5% from 18,6% in January. "Rent, transport, college and tertiary fees contributed the highest to the annual inflation figure," the CSO said in a statement accompanying the release. Zimbabwe’s inflation is the highest in the world, according to the International Monetary Fund. "There are no prospects for recovery because of central bank quasi-fiscal spending which is fuelling money supply growth at a time when industry is shutting down. There is too much money chasing too few goods," said one analyst. He was referring to the practice of the Reserve Bank of Zimbabwe of issuing bills to mop up excess liquidity. Analysts said the policy is fuelling money supply growth as the bills were being issued at astronomical rates for only 91 days, meaning after that period more money is injected into the market. An acute shortage of foreign currency has resulted in scarce fuel supplies, which have pushed up transport costs. House rentals have surged following the government’s controversial clean-up operation last year, which destroyed homes and left hundreds of thousands of Zimbabweans without shelter. (News24, South Africa / Business Day, South Africa)

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