By Nyasha Chingono
HARARE (Reuters) - The International Monetary Fund (IMF) on Wednesday encouraged Zimbabwe to speed up currency reforms at the end of a staff visit, saying authorities should move towards a market-driven exchange rate and remove distortions currently in place.
The visit discussed Zimbabwe's request for an IMF staff-monitored programme, part of the southern African country's efforts to re-engage with the international financial community by demonstrating a track record of sound economic policies.
Zimbabwe has not been able to secure financing from the likes of the IMF for more than two decades due to arrears in servicing its debt to lenders including the World Bank, the African Development Bank and European Investment Bank.
"The IMF is currently precluded from providing financial support to Zimbabwe due to its unsustainable debt situation ... and official external arrears," the IMF said in a statement.
"An IMF financial arrangement would require a clear path to comprehensive restructuring of Zimbabwe's external debt, including the clearance of arrears and a reform plan that is consistent with durably restoring macroeconomic stability."
Zimbabwe's central bank and finance ministry have said they are working on measures to stabilise the Zimbabwean dollar, which has fallen about 40% against the U.S. dollar since the start of the year.
One option being considered is linking the exchange rate to assets such as gold.
The IMF said policymakers should eliminate a restriction on the 10% allowable trading margin for pricing domestic transactions and narrow the central bank's legal mandate to core functions.
Addressing a joint press conference with the IMF, Zimbabwe's Finance Minister Mthuli Ncube said officials agreed the local currency needed to be more reflective of market conditions.
The Zimbabwean dollar was relaunched in 2019 after a decade of dollarisation, but it rapidly lost value and the use of foreign currencies in domestic transactions was reauthorised soon after.
Central bank Governor John Mangudya said the focus of an upcoming monetary policy statement would be stabilising the exchange rate.