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ZIMBABWE: GOVERNMENT PRINTS $21 TRILLION TO PAY IMF February 18, 2006
Apunyu Bonny
(SomaliNet) As a way forward to pay off International Monetary Fund (IMF) arrears, Zimbabwean government has printed a staggering $21 trillion to buy foreign currency. Reserve Bank governor Gideon Gono said Thursday.
Though the move is expected to avert expulsion, it will not avail much-needed balance-of-payments support, and worse it is set to stoke inflation and push the local currency against the wall.
According to Gono, printing money and resultant broad money supply growth was the major driver of inflation in 2005 and has spilled over into the current year. He said the country had no choice but to print money to pay its IMF arrears. Printing of money fuels broad money supply growth which, together with the yawning 8,6% budget deficit and other factors such as state borrowing, is the major cause of inflation.
Broad money supply growth has been on a sharp upward trend, from 177.6% in January to 411,5% in November last year. Inflation this week surged to 613.2% for January from the December rate of 585,8%.
"The collectivity of Zimbabweans must realise that this high growth in money supply was occasioned by printing of $21 trillion to buy foreign currency to pay the IMF," Gono said.
In order to be in position to settle its arrears and introduce economic reforms to avoid expulsion from the IMF, Zimbabwe has been given four successive six-month grace periods.
On September 24th 2001, Zimbabwe was declared ineligible to use the general resources of the IMF, and removed from the list of countries which could borrow resources under the PRGF due to non-payment.