ZIMBABWE has received a US$500 million windfall from the International Monetary Fund (IMF) – after 10 years of financial restrictions from the institution – following the injection of a whopping US$283 billion into the global economy to provide liquidity and boost member countries’ dwindling foreign exchange reserves.
The money, most of it alreadyÂ deposited into the Reserve Bank account, would temporarily ease the severe liquidity crunch buffeting the local market which has been failing to stabilise due to lack of a major financial booster since the inclusive government came into office in February.
According to the IMF, Zimbabwe got US$408,7 million on August 28. About US$103,6 million is expected to be in the Reserve Bank account by Monday, bringing the total to US$512,3 million.
The IMF pumped US$283 billion – of which US$250 billion has already been paid to about 186 countries – into the global economy to contain the worldwide financial crisis, the worst since the Great Depression in the 1930s.
About US$100 billion of the general allocation will go to emerging markets and developing countries, of which low-income countries will receive over US$18 billion.
The general Special Drawing Rights (SDR) allocations were made on August 28 to IMF members that are participants in the SDR department in proportion to their existing quotas in the Fund, which are based broadly on their relative size in the global economy.
In terms of this formula, Zimbabwe is entitled to US$512,3 million.
The allocation will provide each participating country with SDRs in amounts equivalent to approximately 74% of its quota. Allocations varied from US$4 million for small economies like Bhutan to US$42 billion for the United States, the world’s largest economy.
Sources said yesterday central bank and treasury authorities were engaged in discussions about how to utilise the money to revive the economy. The sources said government officials were in high spirits about the IMF financial support after months of largely fruitless scrounging for funds all over the world.
Efforts to get comment from the Reserve Bank and Ministry of Finance were unsuccessful but treasury sources said talks were underway on how to disburse the funds to breathe life into the economy.
Although the receipt of the money does not necessarily signal the restoration of normal balance-of-payments support suspended 10 years ago largely due to non-payment of arrears, the funds would restore a measure of confidence in the economy struggling to recover from devastation caused by extended periods of misrule.
Zimbabwe currently needs up to US$10 billion for economic recovery. Slightly over US$1 billion has been secured since February. Government estimates that the country needs US$45 billion in the next 10 years to recover to the Gross Domestic Product levels of 1997.
Sadc countries, most of which got millions in the past week from the IMF under the same facility, in March promised a rescue package for Zimbabwe. Harare would now be hoping for a bailout from its regional partners now that almost all of them got billions in total from the IMF.
South Africa, the continent’s biggest economy and Zimbabwe’s main funder of late, alone got more than US$2 billion from the IMF.
Zimbabwe last got money from the IMF in 1999 when the multilateral lender approved a stand-by credit of about US$193 million to support its economic programmes. The country, which for years had been reeling from a suspension of disbursements and technical assistance, survived many attempts to have its voting and related rights terminated for non-payment. Expulsion would have ensured that Harare did not get the current US$500 million.
Zimbabwe got a reprieve from the IMF after repaying US$120 million in 2006 to clear its General Resources Account arrears. Between 2004 and 2006 the country made a cumulative payment to the IMF of US$210 million to reduce its arrears.
However, Zimbabwe – which has a huge debt overhang of US$4,7 billion that includes US$3,1 billion in external arrears – still owes the IMF US$138 million.
With much of the world still mired in recession, the IMF took action to bolster its members’ reserves through an allocation of SDRs.
The SDR is an international reserve asset created by the IMF in 1969 to supplement its member countries’ official reserves. Its value is based on a basket of four key international currencies, the US dollar, euro, pound sterling and the Japanese yen.
The current exchange rate is SDR1 to US$1,56. SDRs can be exchanged for freely usable currencies. With a general SDR allocation taking effect on August 28 and a special allocation on September 9, the amount of SDRs will increase in US terms to $317 billion.
The IMF board approved on August 7 a general allocation of SRDs equivalent to US$250 billion after adopting the proposal on July 17. This followed the commitment made by G20 leaders at their April summit in London to boost global liquidity.