ZIMBABWE is working on a hybrid strategy involving a request for debt relief under the highly indebted poor country (HIPC) scheme to honour external debts and an injection of fresh financing from multi-lateral financial institutions, the International Monetary Fund (IMF) has said.
In a statement released on Wednesday following the Article IV consultative meetings in March, IMF said the country would also use “mineral wealth to achieve sustainable development”.
The IMF statement came a week before next Thursday’s highly anticipated mid-term fiscal policy review by Finance minister Tendai Biti.
“The authorities (Zimbabwean government) also expressed strong interest in a (IMF) staff-monitored programme (SMP),” said the IMF. “In this regard, they will seek to strengthen policies and data reporting, as well as improve relations with the international community.”
IMF said the SMP would be a stepping stone towards debt relief and new international financial institution lending.
However, this was subject to strengthening of economic policies, particularly Reserve Bank of Zimbabwe (RBZ) governance, reporting and financial management, and public sector wages.
During the Article IV meetings which ended on March 17 in the country, Zimbabwe agreed that making timely quarterly payments to IMF and increasing them over time would strengthen the credibility of the country’s commitment to normalising relations with the fund.
The IMF added that there was “intense debate within the government” on possible use of mineral wealth to resolve external debt arrears and “consensus is emerging among key government officials that mineral wealth alone would not be sufficient to achieve debt sustainability”.
The IMF recommended that government urgently forge political consensus for addressing significant policy challenges to support the fragile economic recovery.
Despite showing signs of recovery, the country’s economy has stalled with certain sectors going into reverse.
It was also recommended by the IMF that the government return to cash budgeting, where it is only the revenue that is realised that would be used as well as reducing the wage bill which accounts for close to 67% of government expenditure.
Government had to contain rapidly rising risks to the banking system through a reduction of banks’ exposure to the financially distressed RBZ.
It was also important that the central bank’s governance was strengthened as well as downsizing it, the IMF said.
“Although reaching consensus on the recommended measures is a major political challenge, speedy implementation of the recommendations is essential for reducing significant macro-financial vulnerabilities and avoiding higher costs of a forced delayed adjustment,” added the bank.
This is the second time this year that the IMF has warned of a possible banking crisis after another delegation which was in the country from June 2-10 to review recent economic developments and assist the government in the preparation of the mid-year budget statement made similar observations.
In its report, the IMF said monthly exports, credit money and government revenues suggested the economy was decelerating, while the banking sector vulnerabilities were growing due to lower liquidity and severe undercapitalisation of banks, especially the weak and smaller ones.
Meanwhile, anticipation is high that Biti will announce new measures to put the economy back on track when he presents the mid-term fiscal review on Thursday.
Biti presents the budget review at a time when industry is showing signs of fatigue. Capacity for industry, which is reeling from high productive costs, has stagnated at between 20% and 40%.
Economic commentator John Robertson said the mid-term review provided Biti with an opportunity to arrest the downturn caused by the announcement of indigenisation and empowerment regulations in January.
Foreign investors, key to economic recovery, have become jittery following the announcement of the regulations, which force companies with a net value of US$500 000 or more to dispose majority shareholding to blacks.
“What we would like to hear him (Biti) say is that he has revised the indigenisation regulations; not in the manner that Saviour (Kasukuwere, the Youth Development, Indigenisation and Empowerment minister) has been doing because the discouragement (for investors) which has been there remains,” said Robertson. “There are no new investors coming and this means there won’t be money and no development.”
Robertson said despite showing strong signs of recovery in the first three months of this year, the economy had suffered because of the confusion surrounding the indigenisation regulations, whose implementation could be as chaotic as the often violent invasions of white-owned farms.
“There should be policy changes and the most important thing is that Biti should overwhelm the damage that has been done by Kasukuwere,” added Robertson. “Another issue is that the minister is expected to revise expenditure.”
On Thursday, Biti faces the same MPs to whom he presented the 2010 budgetary statement in November last year and promised a windfall in Constituency Development Funds (CDF).
The US$50 000 fund per constituency is yet to be released to the lawmakers six months on. MPs who spoke to the Zimbabwe Independent yesterday said Biti should immediately avail the funds, noting that community development should be a priority for the inclusive government.
“Obviously we would want to have something,” said Innocent Gonese, the MDC chief whip. “We are not sure if the CDF would come, but this time around we hope it would come. When we receive the funds, we have to sit down with the stakeholders in the constituency as it is something which has to be done collectively.”
Apart from explaining the state of the fund as well as how the economy would be revived, Biti is also expected to show how the country would meet the gap left by the failure of donors and foreign partners to support Zimbabwe’s budgetary requirements.
Zimbabwe is unlikely to receive support from donors because of the slow pace of economic and political reforms.
Biti, in his 2010 budget statement, had banked on donors and international financial institutions to fund 36% of the national expenditure.
At least US$810 million of the US$2, 25 billion national budget was supposed to come from external sources, but they have remained tight-fisted, prompting the minister to look for alternative sources.
Biti is expected to tell the nation how the anticipated budget deficit would be met as well as issues around the remuneration of the public service.