Amid the chaos and despair, some signs of hope flicker as Zimbabwe seeks to re-engage with the international community. Conversely there appears to be greater support and willingness by the international community to support Zimbabwe.
Ritesh Anand Column
In recent months we have seen a thawing of relations with the West and a genuine willingness by Zimbabwe for re-engagement. Perhaps we have finally realised that the support of the international community is vital to drag us out of the quagmire. Is this a new beginning for Zimbabwe or is it just another false dawn? Is Zimbabwe serious about economic reform? Is there broad support and commitment to the re-engagement process and what are we doing to improve the investment climate?
Post-dollarisation in 2009, Zimbabwe’s economy rebounded strongly growing at almost 8% per annum between 2009-2012. Since 2013, the economy has been in free-fall with GDP expected to decline by 2-3% in 2015, the first time since dollarisation.
Weak domestic demand, lower commodity prices, the appreciation of the US dollar, insufficient external inflows and the recent drought have weighed down on the economy. Zimbabwe needs to find a way to stimulate growth and economic activity in order to survive.
A key part of the solution lies in resolving Zimbabwe’s external debt, which stands at US$10,8 billion or about 77% of GDP. The IMF-led Staff-Monitored Programme (SMP) plays a critical role in building a strong track record toward normalising Zimbabwe’s relations with creditors, mobilising development partners’ support, supporting macro-economic policies and laying the foundation for addressing Zimbabwe’s deep-seated and yet fundamental structural issues. An SMP is an informal agreement between a country’s authorities and the IMF to monitor the implementation of the authorities’ economic programmes.
On September 30, the IMF management completed the second review under the SMP with Zimbabwe. The IMF were pleased with the progress that Zimbabwe has made by complying with four of the five quantitative targets for end-June 2015 and all the structural benchmarks for the second review were met.
According to the IMF, Zimbabwe has made progress in implementing its reform agenda, particularly in the financial sector and labour market reforms. Attempts are being made to rationalise public expenditure and reduce public sector employment costs.
Government does, however, appear to be split on the issue. Fiscal discipline is critical to the success of the SMP. Financial sector and labour market reforms need to be supported by investment policy reforms if Zimbabwe is to be successful. A policy on indigenisation that is clear, consistent and fair needs to be crafted if it is to attract much-needed foreign direct investment.
Zimbabwe has certainly demonstrated it’s commitment to the SMP by taking important steps towards advancing macro-economic and structural reforms, despite increasing economic and financial difficulties. The policy reform agenda for the remainder of the SMP consists of:
- mitigating the impact of this year’s adverse shocks on the external position and growth;
- improving the investment climate;
- restoring confidence in the financial sector; and
- garnering support for a strategy to clear arrears to international financial institutions (IFIs).According to a statement by Finance minister Patrick Chinamasa, “over the medium-term, government remains committed to implementing sound macro-economic and structural policies.The objectives are to:
- maintain macro-economic stability,
- fully harness Zimbabwe’s growth potential,
- tackle fiscal challenges,
- further hone confidence in the financial sector,
- improve the external position, and
- set the stage for strong private sector-led growth”.The intensified re-engagement with the international community has the immediate objective of resolving arrears with the IFIs and eventually seeking debt rescheduling under the umbrella of the Paris Club.
On the sidelines of the recent IMF annual meeting in Lima, Peru, Zimbabwe presented a strategy for clearing its external debt thereby seeking the support of creditors and development partners.
Strong support from the Lima meeting, successful completion of the SMP and continued commitment by the authorities would set the stage for advancing the re-engagement process with the IFIs and bilateral creditors and herald a new beginning for Zimbabwe. Government needs to remain steadfast, united and disciplined in its commitment to economic reform. The SMP is an important step towards an IMF-supported financial programmes.
There is some light at the end of the tunnel. Amidst all the doom and gloom, Zimbabwe has a real opportunity to lift itself out of poverty and transform its economy. The economy is haemorrhaging and requires swift and deliberate action. Creating a favourable investment climate and attracting FDI is critical to the long-term success of the country.
We cannot do this alone and require all the support and goodwill of the international community. Let us hope that 2016 brings with it a renewed sense of hope and optimism toward a new beginning. Zimbabwe must chart its future now!