Biti/IMF clash looms over SDR funds

biti_tendaiHARARE Finance Minister Tendai Biti risks falling foul of the International Monetary Fund (IMF) after disregarding the Bretton Woods institutions advice to save special drawing rights (SDR) funds allocated to Zimbabwe three months ago, an economic think-tank has warned. (Pictured: Fin

Biti last week succumbed to pressure from within Zimbabwes 10-month-old coalition government by allocating more than half of the US$510 million given to the country in September to cushion the economy from the ravages of this years global economic crisis. Presenting his 2010 budget on December 2, Biti told parliament that he would draw down some US$260m from the IMF SDR allocation.

The SDR payments are separate from IMF programme financing, which comes with strict policy conditions and goes into a country’s foreign exchange reserves. To turn SDRs into hard currency, Zimbabwe will have to reach an agreement with another IMF member to buy the SDRs. The SDR, the IMF’s internal unit of account, is made up of a basket of euro, yen, sterling and dollars and each country’s SDR allocation is based on the size of its IMF quota share, which is broadly calculated according to the size of the economy, trade and reserves.

Biti has come under intense pressure from central bank governor Gideon Gono and lately Vice President Joice Mujuru to step up public spending. This he has now agreed to do, allocating US$210 million to infrastructural investment and US$50 million for the provision of inputs to small-scale farmers. In so doing, however, he risks falling foul of the IMF, which has urged Harare to save the entire US$510m special SDR allocation and use the money to rebuild its virtually non-existent reserves, observed London-based think-tank Economist Intelligence Unit (EIU).

During the budget presentation, Biti mentioned that he would seek the IMF permission to use the money for infrastructure development and farm inputs. The IMF refused to comment last week on whether it would sanction the change in the use of the SDR funds or if the Zimbabwean minister had already applied for permission. A staff team from the IMF that visited Harare in October advised the Zimbabwean authorities to seek sustained concessional donor financing in support of their medium-term growth and poverty reduction

objectives rather than relying on non-concessional SDR-related funds.

The SDR allocation provided an important one-off boost to Zimbabwe’s depleted international reserves, and should be saved, the IMF mission said at the time. A decade of economic turmoil has seen Zimbabwes foreign reserves declining from the recommended three months import cover to about a days cover at the height of the countrys problems last year. Although latest figures could not be obtained at the time of going to print, the countrys official foreign reserves were last pegged at a paltry US$1.2 million in March 2008, equivalent to about a days

import of fuel.

Zimbabwe uses about US$40 million a month to import fuel.

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