HomeBusiness DigestIMF report: nothing we did not know

IMF report: nothing we did not know

By Admire Mavolwane

ZIMBABWE now finds itself in an incommodious situation in which a seemingly ingenious solution to one problem inadvertently creates another.

Arial, Helvetica, sans-serif”>For example, the payment of the arrears to the International Monetary Fund (IMF), whilst it ensured that we at least got some recognition for our actions and did not get booted out to join the ranks of other global outcasts like Cuba and North Korea, has created a further problem in as far as local foreign currency needs are concerned, as we literally took the last dollar we had and paid it over to the international lender.

On the positive side, however, we remain a member and can still trade freely without fear of reprisal. The converse is that we do not have any fuel and the local currency has come under increasing pressure and continues to depreciate on the parallel market.

On Tuesday, the Herald reported that the country had made “a surprise additional payment of US$15 million to the IMF.”

Indeed the situation is so bad that we surprised both ourselves and quite likely the lender by being able to repay a part of our debt. The IMF could have been really taken aback by the payment given the tone of the report, which, coincidentally, was released the same day as the payment. The report follows the conclusion of the Article IV consultations and the board meeting of September 9.

Reading between the lines, one realises the gravity of our current predicament. The report reveals that some of the measures we implemented one and half years ago in an effort to stimulate a supply side response have essentially come back to haunt us.

These initiatives which included subsidies and other quasi-fiscal support schemes have actually resulted in large losses in the RBZ balance sheet and have contributed to the expansion in money supply. In this instance the positive seems to have been far outweighed by the negative.

There is a wide variation, although not unexpected, between the IMF’s and our government’s economic forecasts, especially with regards inflation and GDP growth. Bureaucrats, not only here in Zimbabwe but everywhere in the world, by their nature prefer to err on the optimistic side in their projections.

The Minister of Finance, in his mid-term fiscal policy reiterated that the economy would show positive growth in real GDP of 2%, a downsizing of the earlier guesstimate of between 3,5 % and 5%.

The revision was necessitated by the failure to realise some of the assumptions upon which the initial growth forecast had been based.

Tobacco output, previously expected to double to 160 million kg, actually increased by a marginal 5%. Other crops which were expected to spur growth, like maize did not do well either, with maize estimated at most at 750 000 tonnes, and seed cotton at 195 000 tonnes against 331 000 in 2004.

Figures for wheat and sugar are not yet out. One can easily conclude therefore that production in the sector actually declined.

The mining sector remains the beacon of hope for the country, with major mining houses showing increased production, on the back of favourable financing conditions and firming international prices.

The manufacturing sector remains in limbo, with foreign currency shortages hindering production. A large proportion of the sector is operating at below 50% capacity and is barely managing to stay open whilst there is little investment in expansion. The IMF staff – no one calls them experts anymore and with good reason I guess – project that the country will regress by another 7,2% this year. One could say what’s new?

In the period 1999-2003 the economy contracted by an estimated cumulative 28,4% with a further 4% last year. The country’s terms of trade are expected to have deteriorated by 7,9% come December. Export volumes are also expected to have declined by as much as 7,3% by year end while export earnings on the other hand are expected to be constant. As a result of the foreign currency shortages, the country’s imports are expected to be down by 11,9%. This highlights the country’s major shortcoming; that is the need to import so as to produce and export. In essence, the decline in exports could owe much to the inability to import.

The recommendations from the IMF board are hardly new and are what we have known for a long time now. The recommended dosage from the board reads: “Directors therefore called for urgent implementation of a comprehensive package comprising several mutually reinforcing actions.

These should include; strong fiscal adjustment; full liberalisation of the exchange rate regime, adoption of a strong monetary anchor; elimination of all quasi-fiscal activity by the RBZ and the absorption of the RBZ losses by the budget; and fundamental structural reform, including improvements in governance.”

Of fundamental importance, for which the IMF board can be criticised for not noting in their report, is an opinion on the willingness or capacity of the Zimbabwean authorities not only to take the medicine but also to go for the full Monty.

As alluded to above, the IMF comments are hardly an eye opener, and it does not make any difference that the sentiments come direct from Washington.

With the question of sovereignty and home grown solutions being the theme of the day there is a real danger of the recommendations being thrown out as no more than an attempted imposition by a western bully. Thus, whilst it was a noble idea to try and steer us towards the right path, it runs the risk of actually doing more harm than good.

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