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IMF says Zim in the red

ZIMBABWE is vulnerable to external shocks as its international reserves of US$182 million covers only 10 days, a recent report by the International Monetary Fund (IMF) has warned.

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In a comprehensive report on Zimbabwe, the global lender said “with international reserves covering only 10 days of imports, the country has no cushion against external shocks”.

“Analysis suggests that at least three months of imports in reserve coverage would be necessary for Zimbabwe. There is currently no strategy to increase reserves over time; such a strategy would require sustained fiscal surpluses,” IMF said.

It said that in a dollarised economy “reserves are not only insurance against external shocks, but also a key tool for managing domestic financial instability”.

The multilateral institution said the credit and liquidity risks were high given the weakly capitalised banking system.
It said full dollarisation constrains a country’s lender-of-last-resort function and hence the central bank’s response to financial system emergencies.

“With low liquid assets of its own, the Reserve Bank of Zimbabwe (RBZ) can provide only limited short-term liquidity to banks, and cannot be the ultimate guarantor of the stability of the financial and payments systems in the event of a systemic bank run,” IMF said.

IMF also warned Zimbabwe against using Special Drawing Rights funds as they are meant for reserves.

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