The International Monetary Fund (IMF) recently completed their first review of Zimbabwe’s Staff-Monitored Programme (SMP) and released a statement this week.
The Ritesh Anand Column
According to the IMF, Zimbabwe has made good progress despite the “substantial” economic and financial challenges. The statement, issued by the head of the IMF mission to Zimbabwe, Domenico Fanizza, said “despite the substantial economic and financial challenges, the authorities have made progress in implementing their reform programme and meeting all quantitative and structural benchmarks for the first review under the SMP”.
This is a great achievement given the harsh economic and financial conditions and reflects government’s commitment towards reform. The economy is talking, it seems, and government are listening. In a dollarised environment, there are no places to hide.
Reforms are painful, but lay the foundation for sustainable long-term growth and development. Zambia went through a similar process over 20 years ago and continues to reap the rewards of good governance, sound macro-economic policies and reform. The government should therefore remain committed and steadfast in the implementation of key reforms to enable the country to move forward.
According to the IMF, the economic prospects for Zimbabwe remain difficult.
“Growth has slowed and we expect it to weaken further in 2015. Despite the favourable impact of lower oil prices, the external position remains precarious, and the country is in debt distress.”
The country has not seen any significant benefit from lower oil prices. Fuel prices have remained high despite government’s attempt to enforce the lowering of prices at the pump. Imports continue to exceed exports given the weakness in the South African rand.
Zimbabwe cannot thus compete against cheaper South African imports because of the weak rand. The only way it could become competitive again is if it invested significantly in modern technology, systems and processes. For this it requires significant capital and human investment. Under the current conditions this seems highly unlikely.
Key reforms need to be implemented with some urgency and commitment. In this regard it is pleasing to see that government has intensified efforts to lay a solid foundation for more inclusive and lasting economic growth. Government has also made concerted efforts to re-engage with the international financial community to resolve its outstanding debt while seeking support for the reform process.
However, according to the IMF, the policy reform agenda consists of four major areas:
Balancing the primary fiscal accounts: The commitment to eliminate the primary fiscal deficit re-affirms Zimbabwe’s intention to further raise its capacity to repay.
The top priority is to move resources from a very high wage bill to much-needed capital and social spending. To this end, the authorities must work towards reducing the share of revenues absorbed by the wage bill.
In addition, by amending the Public Finance Management and the Procurement Acts, they will seek to increase accountability, transparency and efficiency in the use of public resources.
The reform of the tax regime for the mining sector could go a long way in mobilising additional resources, and continuing to publish audited financial accounts of the mining companies will enhance transparency.
Restoring confidence in the financial sector: A sound operational framework for Zimbabwe Asset Management Company (Zamco) is key to freeing the banking system from the burden of high non-performing loans that limit the banks’ ability to extend credit to the private sector and keep the cost of credit low. Moreover, completing the recapitalisation of the Reserve Bank of Zimbabwe (RBZ) will enhance its ability to supervise the banking sector.
Improving the investment climate: The authorities plan to publish on the website of the Zimbabwe Investment Authority a simplified summary of the Indigenisation and Economic Empowerment Act.
In addition, they are reviewing the 1985 Labour Relations Act to adapt it to the competitiveness challenges arising from a fast-changing global environment.
Garnering support for a strategy to clear arrears with multilateral institutions: The authorities plan to step up their efforts to build consensus among all development partners on ways to address these arrears.
Government has made significant progress in recent months led by the Finance minister Patrick Chinamasa. Despite the harsh economic and financial conditions, it is encouraging to see governments commitment to reform.
The strategy to focus on clearing debt arrears while improving the investment climate will go a long way in ensuring long-term, sustainable economic growth.
Zimbabwe is very much back in business. It is critical that government remains steadfast in it’s commitment to reform. The economic and financial challenges will certainly test government’s resolve to reform.