Among some of the positive highlights, the IMF says Zimbabwe will have a budget surplus, thanks to rising mineral prices and other “favourable shocks” such as the firming of the South African rand which has restored competiveness in local businesses.
The IMF team led by Vitaliy Kramarenko which visited Zimbabwe recently says the country has renewed efforts to strengthen policies and would experience some favorable shocks.
Furthermore, the budget should see a cash surplus in 2011.
Kramarenko said: “To sustain the economic recovery, spread its benefits to a larger share of the population, and reduce significant external and financial vulnerabilities, it is important to build consensus on a strong medium-term agenda focused on prudent macroeconomic policies and a comprehensive package of structural reform. Political stability is also key to consolidating gains in macroeconomic performance.”
But government has to re-orient budget expenditure towards infrastructure and social needs in order to solidify recovery and improve the livelihoods of ordinary Zimbabweans.
Also, according to the IMF, government should live within its means and not spend in excess of US$2,5 billion in 2011. An IMF World Economic Outlook assumptions for commodity prices, sees the budget broadly balanced in 2011.
Turning to banks, the fund says risk in the banking system has eased since early 2010 owing to what the fund described as strict supervisory and “early” intervention on the part of the Reserve Bank of Zimbabwe. “Yes, the central bank has done a good job of containing risk in the banking sector.” However, the fund underscored the need to rid government of ghost workers in order to create fiscal space for higher capital expenditure and social programmes.
Government should institute structural reforms in areas such as reducing labour market rigidities and address land tenure issues, clarify ownership requirements under the indigenisation legislation and address concerns about governance in the diamond sector.
Zimbabwe gazetted indigenisation and economic empowerment regulations compelling foreigners to “dispose of” 51% stakes in companies valued at US$500 000 and above to black Zimbabweans. The empowerment policy has spooked foreign investors who fear it could turn into a land-reform-type policy.
While the economy’s outlook is looking up, the politics in the unity government are getting nastier by the day. Now Mugabe wants elections next year. Apart from the violence anticipated in next year’s elections as parties battle to win the hearts and minds of the electorate, Finance minister Tendai Biti has to make a provision for US$200 million in the 2011 budget. This is way over government’s monthly revenue collection of US$140 million. Undoubtedly, this will affect the economy and scare off what is left of investors in the market.
Many feel the US$200 million meant for elections could be put to better use and improve the lives of Zimbabweans. Even Industry minister Welshman Ncube, who belongs to a smaller faction of the MDC, is against holding elections and warns the timing could not be worse.
Of late, foreign fund managers in the country have begun spending a bit more on stocks as evidenced by this week’s US$12 million Econet parcel that was snapped up on Monday. The past three quarters have seen foreign funds being diverted to safer investment destinations while this quarter has seen funds coming back into the market at a slower pace.
But at the end of the day, the politics of the day is going to determine the route Zimbabwe’s macro-economics will play out and if the economy will reap any benefits, especially given the economy’s fate, is now in the hands of politicians whose only interest, unfortunately, is power.