KEY POINTS
- Fiscal reforms offer the possibility for Zimbabwe to settle its $21 billion debt.
- The World Bank recommends stabilizing inflation and tax policies.
- The ZiG currency faces challenges, requiring stronger economic policies.
Zimbabwe has the opportunity to clear its long-standing arrears and restructure its $21 billion debt, but only if it embraces bold fiscal reforms, according to the World Bank.
In a recent review of the country’s public finances, the global lender emphasized that tackling macroeconomic instability is key to unlocking international capital markets.
“By adopting a bold set of fiscal reforms, Zimbabwe can turn the page on a prolonged history of economic uncertainty,” the World Bank said.
“A credible national budget, stable inflation, and an efficient financial system would create the opportunity for debt resolution and unlock significant concessional financing for public and private investments.”
Zimbabwe has been locked out of international lending since 1999 after defaulting on obligations to creditors, including the World Bank, the Paris Club, and the African Development Bank.
To repair its image, the government selected AfDB President Akinwumi Adesina and former Mozambican President Joaquim Chissano to handle discussions with creditors.
Additionally, the nation is making restitution payments to farmers who lost their properties following the contentious land reform project initiated in the early 2000s.
Key reforms needed for economic stability
The World Bank proposes various essential economic changes for advancing debt relief.
The World Bank recommends economic adjustments that involve eliminating monetary and exchange-rate distortions for inflation stabilization, reducing public-sector wages, and canceling VAT exemptions to enhance government revenues.
Zimbabwe launched the ZiG (Zimbabwe Gold) currency in April last year as a replacement for U.S. dollar transactions within the local market. However, government attempts to establish a national currency previously ended in economic instability through hyperinflation.
The ZiG receives support from the central bank through their actions to control the money supply while enforcing local currency pricing for businesses, which benefits informal traders who use black-market exchange rates.
The government actively supports economic formalization yet the World Bank contends that Zimbabwean businesses move into the informal sector because of complicated taxation and excessive regulations.
According to New Zimbabwe, the bank urged authorities to reduce the compliance burden on small businesses and create a stable investment environment that attracts foreign capital.
Unlocking growth through international partnerships
Zimbabwe needs to enhance its financial institution relations to receive debt relief for international organizations, beyond local reforms.
The World Bank supports continuing negotiations with creditors at a pace that will restore financial credibility for Zimbabwe.
Experts predict that Zimbabwe will overcome its economic crisis if it maintains consistent policies and strategically invests funds.
Criticism exists about these measures, as Zimbabwe showed repeated policy changes and poor financial management in the past.
The World Bank highlighted a debt crisis resolution for Zimbabwe that would bring vital financial relief, access to foreign direct investment, enhanced credit ratings and strengthened economic partnerships.
However, the country remains poised to face greater economic detachment from worldwide financial sectors unless steps are taken swiftly to improve economic management and policy decisions.
