Structural reforms key to economic recovery

ZIMBABWE’S efforts to secure funding from China may eventually result in something coming in — either through a loan or mortgaging of minerals — but will not resolve structural issues unless the country undertakes major political and economic reforms, chief among them leadership renewal and policy changes, analysts say.

Taurai Mangudhla

Zimbabwe has been negotiating for a US$10 billion package from China, but government and diplomatic sources say it might eventually get US$4 billion after President Robert Mugabe’s visit to Beijing later this month.

However, analysts say only political and economic reforms can guarantee sustainable recovery of an economy which has been going through serious problems since 1999 despite a brief reprieve between 2009 and 2013.

A recent International Monetary Fund (IMF) report on Zimbabwe summarises the current state of the economy and points to critical issues which need to be urgently addressed.

It says Zimbabwe’s economic rebound experienced since 2009 has ended, with economic growth decelerating in 2013, and thus urgent measures must be taken to deal with the deteriorating situation.

“The external position is vulnerable, with a wide current account deficit, an overvalued exchange rate, and low international reserves. The baseline scenario is marked by sluggish growth in 2014 and over the medium-term, with risks clearly to the downside in the near-term,” the report states.

“Key risks to the outlook include lower-than-programmed tax collections, policy slippages, financial sector stress and global commodity prices. Zimbabwe faces these risks with very thin buffers.

“The Staff-Monitored Programme (SMP) provided a useful anchor for Zimbabwe in an election year. However, progress in implementing the programme was complicated by a long electoral process and a protracted post-election transition, as well as an adverse external environment. Thus, a number of quantitative targets and structural benchmarks were not met.”

Although discussions on the first and second reviews of SMP are at an advanced stage, the economic environment remains difficult, posing significant risks to the budget and to financial stability, it says.

“Policy efforts should continue to aim to restore fiscal and external sustainability and reduce financial vulnerabilities. Zimbabwe faces serious medium-term challenges, and a vigorous reform programme is needed to put the country on a sustainable, inclusive growth path.

“In particular, a fiscal strategy aimed at rebalancing the expenditure mix should be a priority — including to prevent the accumulation of domestic arrears. Significant financing is needed to address the infrastructure deficit and widespread poverty, as targeted under the government’s own development plans. To attract much-needed FDI (foreign direct investment) and access affordable financing, the authorities need to improve the business environment.

“Zimbabwe’s debt situation remains a serious impediment to external sustainability and economic development. Addressing this issue will require a comprehensive arrears clearance framework underpinned by strong macro policies, in what will likely be a protracted process.”

Analysts say these are the real issues which Zimbabwe must focus beyond the issue of a financial bailout which they say is needed, but would not be able to deal with structural problems hindering economic recovery.

At the moment, government seems pre-occupied with getting and throwing money at problems.

That is partly why Mugabe will this month embark on a state visit to China as he desperately seeks a US$4 billion rescue package to stabilise the country’s worsening economic crisis characterised by a debilitating liquidity crunch.

Mugabe’s visit follows similar and fruitless visits in January and three weeks ago by Finance minister Patrick Chinamasa after Beijing requested for bankable projects.

The president last month appealed to a visiting Communist Party of China (CPC) delegation to assist by funding what he said was Zimbabwe’s “economic struggle that we shall be waging with our natural resources so we can produce the necessary wealth for our people”.

Government has come up with an economic blueprint, ZimAsset which requires about US$27 billion to fully implement between 2013 and 2018, but funds have so far proved difficult to get.

Zimbabwe turned to China and Russia for assistance after being rebuffed by international financial organisations such as the IMF and World Bank as well as investors with capacity to inject FDI who are concerned about policies like indigenisation which have led to capital flight and prevented investment inflows.

Analysts say besides policy inconsistencies, China remains cautious about giving Zimbabwe a rescue package partly due to Mugabe’s age and health complications as well as failure to deal with the succession issue.

In 2012, Zanu PF chairpersons visiting China were reportedly told by CPC, which has been ruling since 1949, to change or die, but Mugabe and his party is not showing any signs of dealing with the contentious succession issue.

Instead, Zanu PF seems to be closing the door for young turks aspiring to rise through party ranks after it recently announced inhibitive rules and regulations for elections into top party structures like the central committee, Women’s League and Youth League.

A person has to have served in the party for a period not less than 15 consecutive years to be elected into these organs.

Economist Godfrey Kanyenze said the Chinese will still require structural commitments and reforms before bailing out Zimbabwe on a sustainable basis.

“The issue of re-engagement is very important because the Chinese will not just pour their money on top of debt. Remember, the Minister of Finance was there recently and in January, but he came back empty-handed,” Kanyenze said.

“Zimbabwe should not limit its approach to fundraising without making structural reforms that have retarded economic growth. The Chinese have already insisted on Zimbabwe doing the necessary, so it’s not just a funding issue, but a structural issue as well where we need parastatals reform, managing the recurrent expenditure and the wage bill.”

Former finance minister Tendai Biti said Zimbabwe needs to deal with issues of good governance, accountability, security of tenure and controversial policies like indigenisation to ensure economic recovery. He said begging for funding was just a quick-fix approach and not workable in the long-term.

“Trying to borrow money and thinking it can transform the economy or bring it back to functionality again is a waste of resources,” said Biti, adding Chinamasa and other officials in the Zanu PF government should instead address structural issues.

“China is not foolish and it knows giving money to Zimbabwe is like throwing money into a dustbin because we have no capacity to repay,” he said. “It’s like giving more alcohol to an alcoholic or drugs to a known drug junkie. It doesn’t help.”

Economist John Robertson said government should look for investment instead of relief funding. He said a stable and attractive policy environment will open doors to investment from all over the world as opposed to just borrowing money from China.

“What is required is a major shift in policy; it is the policy environment that needs more attention,” Robertson said.

“A lender has to know how the money will be used to generate more money and China will obviously want something in return which is worrying to Zimbabweans because we might give up valuable assets like mineral deposits which are valued way more than the US$4 billion.”

Robertson added: “Obviously, if you go to someone with a plea for assistance they will take advantage and we may end up forfeiting our assets to the Chinese and they will make a lot of money from them.

“We are not going to get US$4 billion unless we also give something in return and if we give up our assets we are going to regret it in the long run.”

This follows a similar warning to Zimbabwe by World Bank’s senior economist Nadia Piffaretti against mortgaging minerals for financial aid, saying this jeopardises future generations’ welfare. She said it would be better if Zimbabwe sought loans at concessionary rates instead of securitising minerals to secure loans.

Kanyenze said having Mugabe in a fundraising mission is a sign of the difficult times Zimbabwe finds itself in.

“The economy is in structural regression with problems such as de-industrialisation and deflation. All that Zimbabwe was known for in the region economically is gone and the problem is exacerbated by the liquidity crunch which is mainly a result of the unhealthy gap between our imports and exports,” he said underscoring that reforms are needed more than begging for money as that will address real issues and not whitewash problems as authorities seem to be doing now.