Zimbabwe needs predictable policy to support currency, World Bank says

World Bank’s Regional Vice President for Eastern and Southern Africa, Victoria Kwakwa looks on during an exclusive interview with Reuters, in Harare, Zimbabwe, March 1, 2024. REUTERS/Philimon Bulawayo

By Nyasha Chingono

HARARE (Reuters) – Zimbabwe needs to make its fiscal and monetary policy more predictable to instil confidence in its depreciating currency, a senior World Bank official said on Friday.

An illegal money changer shows Zimbabwean notes along a street in Harare, Zimbabwe March 1, 2024. REUTERS/Philimon Bulawayo

It could make progress by moving away from the central bank’s “quasi-fiscal operations”, Victoria Kwakwa, the World Bank’s Regional Vice President for Eastern and Southern Africa, told Reuters in an interview.

World Bank’s Regional Vice President for Eastern and Southern Africa, Victoria Kwakwa speaks to Reuters in an exclusive interview in Harare, Zimbabwe March 1, 2024. REUTERS/Philimon Bulawayo

She did not spell out what those operations were, but the International Monetary Fund said last month the central bank should reduce its non-core activities, which have included printing money and borrowing to lend to the government.

The Zimbabwean dollar has lost more than 60% of its value against the U.S. dollar so far this year while annual inflation is at 47.6%, in a country still scarred by memories of hyperinflation under longtime former leader Robert Mugabe.

“That’s at the heart of the problem, the fact that there hasn’t been confidence,” Kwakwa said.

“And every time people get (the currency), they try to get rid of it to get something else and so it’s constantly losing value.”

The local currency was relaunched in 2019 after a decade of dollarisation, but it rapidly lost value and authorities reauthorised the use of foreign currencies in domestic transactions soon after.

The central bank and finance ministry said last month they were working on measures to stabilise the currency, and were considering linking the exchange rate to the price of gold among other possible measures.

“Policy predictability… the improvements that are being made moving away from quasi-fiscal operations, all of that will contribute to building greater confidence,” Kwakwa said.

The World Bank is “committed” to a process that has been going on since 2022 for Zimbabwe to clear billions of dollars of debt arrears to it and other international lenders, she said.

Meanwhile, Kwakwa said she was “delighted” that China and India had signed debt restructuring agreements with Zambia, the announcement of which by the country’s President last week sparked hopes that it could be close to ending its more-than-three year default.

An illegal money changer shows Zimbabwean notes along a street in Harare, Zimbabwe March 1, 2024. REUTERS/Philimon Bulawayo

“With the official creditors out of the way, the government has a chance now to focus more on getting agreement with the commercial creditors. And we hope that that will also be in the offing soon,” she said.

(Reporting by Nyasha Chingono, Writing by Rachel Savage, Editing by Andrew Heavens)