The IMF recently published the first review of the Staff Monitored Programme on Zimbabwe. It is pleasing to note that, despite the economic and financial difficulties, government has made progress in implementing macroeconomic and structural reforms.
Progress has been slow but steady and government needs to intensify its effort to ensure successful implementation of the program and lay the foundation for sustainable long-term growth and development.
According to the IMF, “Zimbabwe’s economic prospects remain difficult. Growth has slowed and is expected 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. Key risks to the outlook stem largely from a further decline in global commodity prices, fiscal challenges, and possible difficulties in policy implementation.”
While Zimbabwe met all the quantitative targets and structural benchmarks for the first review under the staff monitored program (SMP), government needs to accelerate its efforts in the implementation of key structural reforms such as amending the Indigenisation and Empowerment law. Growth and investment have stalled and government needs to finds ways to stimulate these.
The country needs to create a conducive environment in order to attract foreign investment. Growth can only be achieved through sustainable long-term investment. In the absence of domestic liquidity restoring investor confidence is imperative.
Harare’s authorities have made significant progress in reengagement with its creditors, especially the World Bank and African Development Bank by increasing payments, a key step in the roadmap toward seeking rescheduling of bilateral official debt under the umbrella of the Paris Club. Zimbabwe’s outstanding debt stands at $7.181bn or 52.5% of GDP of which $5.760bn are in arrears. The outstanding debt is not significant in the context of the country’s economy and growth potential.
Zimbabwe has tremendous natural resources including agricultural land that is not being utilised to its potential. It needs to harness its latent resource for growth of the economy in order to fully address the outstanding debt. Resources in the ground are worthless if they remain in the ground. Extraction of the vast mineral resources is necessary. This requires a significant amount of capital investment and time. Once again, significant long-term investment is unlikely to materialise until we create a conducive investment environment.
Zimbabwe has also made significant progress in restoring stability in the financial sector. According to the IMF, “deposit growth picked up in 2014, buoyed in the first half of the year by tobacco-related inflows. Private-sector credit increased slightly but remained constrained by an uneven distribution of liquidity in the system, avery cautious approach to lending by banks, and a weak economy.
The financialsector remains highly segmented with very limited exposure between the large strong banks andthe smaller weak ones. The Afreximbank-supported interbank liquidity facility (US$200m) thatbecame operational in March 2015 is expected to help unlock liquidity from surplus to deficitparticipating banks. In December 2014, the Reserve Bank of Zimbabwe (RBZ) introduced “bondcoins” to address the absence of small denomination dollar coins, a situation that had resulted inthe rounding up of prices to $1.00. The bond coins are fully backed by a US dollar facility, whichshould help mitigate fears that the coins constitute a return of the Zimbabwe dollar.”
The countery’s economic prospects remain difficult. Growth will remain subdued in 2015 due to the late and erratic rainy season negatively affecting the agricultural sector. A subdued recovery in miningand manufacturing is projected, underpinned by improved mining techniques and efforts toincrease value addition, and improved water and power supply following government investmentin key infrastructure projects. Inflation is projected to remain in negative territory in 2015.Ongoing financial sector reforms are likely to boost deposit and credit growth.
According to the IMF, “the externalposition is expected to continue improving, as a result of further fiscal tightening and the impactof lower oil prices, but will remain precarious.International reserves are projected to increase.The country will remain in debt distress until a comprehensive arrears clearance strategy is in place.”
Government has shown commitment and discipline towards necessary reforms. This painful process is made even more challenging by the harsh economic environment. Government needs to avoid contradictory statements especially regarding fiscal and policy reforms.
We need to speak with one voice, work towards a common goal of restoring strong and sustainable economic growth. Key to this is creating an enabling environment for businesses to prosper and attracting inward investment. If Zambia can do it, why can we not? Zimbabwe is back in business and it is our turn to perform.