In what is somewhat of a departure from historical precedent the Ministry of Finance and Reserve Bank of Zimbabwe put out a joint statement confirming the receipt of close to US$1 billion worth of Special Drawing Rights from the International Monetary Fund. While the joint statement was in a rush to explain how the money will be used little was done to educate the nation on the nature of Special Drawing Rights or the details of how they will be used. What was disclosed is that propping up the local currency, which has only depreciated 4.8% officially in 2021.
Special Drawing Rights
There’s been a bit of confusion over what Special Drawing Rights are. The International Monetary Fund is an international fund that is made up of 190 member institutions. Special Drawing Rights are foreign exchange reserve assets distributed by the IMF to member nations. These are not loans but rather membership benefits. Special drawing rights can be drawn in different currencies of choice such as the US Dollar, Yen, Euro and more. This is money that a country can use for various purposes.
Plans for the Money
In the joint statement, the ministry and apex bank pointed out that the bulk of the money will be used to alleviate foreign currency shortages in the economy. There is merit to this idea as we are well aware of the havoc that foreign currency shortages have caused in the nation over the last half a decade. The official foreign currency auction system has come under criticism of late for failing to allocate currency successfully bid for by buyers on the auction. It has brought into question the foreign currency position of the nation despite Reserve Bank Governor Dr John Mangudya’s insistence that there is enough foreign currency in the nation. The devil is of course in the details and how they plan to support the currency through this. The currency has only depreciated 4.8% this year and indications are that the exchange rate is out of touch with reality. The gap has widened between the official and parallel markets. The money will also be directed to health, education, infrastructure, roads, housing, agriculture and mining. That’s a lot!
Could there be better uses for the money? Many seem to think so and I agree with some of those opinions. Our foreign currency shortages have root causes in our dependence on imports and supporting productive industries to substitute imports while boosting those industries with export potential is certainly a noble idea. Supporting the auction system goes some way towards doing this but a more deliberate approach might be more effective. This could also be a good opportunity to encourage exporters by giving exporting businesses a holiday on foreign currency surrender. Of course, without detailed plans, it is unfair to compare the government’s plans with our wishes.
While the economic situation in Zimbabwe makes all wins worth celebrating no matter how small we should take an objective look at Zimbabwe receiving these SDRs. It’s much-needed money at a time when we could surely use it. That said it is not the answer to all our problems. We however hope that it can be the answer to some of our problems.