Re-engagement with IMF not an easy task

A LOT of emphasis has been put on the ongoing re-engagements between Zimbabwe and the International Monetary Fund (IMF), giving hope to some for a workable solution given the current sorry state of the economy.

Financial Matters with Shingai Moyo

In every workshop, business conferences and any economic gathering, talks of re-engagement with the IMF have been thematic. The nation has heard it quite a number of times from Finance minister Patrick Chinamasa that “Zimbabwe is on course to clear the US$1,8 billion of arrears it owes to the World Bank, IMF and African Development Bank (AfDB)”. Chinamasa said earlier this year that the country would repay at least US$1,8bn by the end of June to resume borrowing.

However, the nation has not paid anything to date. As such and typical of Zimbabwean authorities, the nation missed the June 16 target. The government seems to have a tendency of giving promises that it fails to fulfil, exaggerating facts and giving misleading information. Although negotiations with the IMF seem to be positive steps in the right direction, just clearing arrears alone is not enough. It may mean that Zimbabwe’s risk profile may improve, but that alone is not enough as fresh funding is needed to buttress the challenges the country is facing.

Steps to normalise relations with the IMF include the following which might be proving difficult for the government.

Firstly: “Once the arrears are cleared, the IMF board would approve the normalisation of relations with Zimbabwe and any request from the authorities for financing would then be considered.” This seems to be a milestone to achieve. Government may only achieve this by fresh borrowing. However, given the “character” of our government, raising the US$1,8bn may prove to be difficult. Furthermore, it is to the discretion of the IMF board on whether to approve the normalisation of the relations. Given the frosty relations between the President Robert Mugabe-led administration and the West, this is unlikely to happen.

Secondly: “Before any approval is done, Zimbabwe needs to design some economic policies to ensure that the structural imbalances are meaningfully addressed.” The condition simply entails that the IMF does not perceive the government’s economic blueprint ZimAsset as a policy document, or it entails that ZimAsset does not address structural imbalances meaningfully.

ZimAsset is now three years old and most of its promises are yet to be implemented. It takes us back to the “character” of the government. Of late, when Mugabe announced the 10-point plan, it was taken by the government as more of an economic policy document and anywhere Zimbabwe does not have a macro-economic policy.

Recently, Chinamasa has been working on Poverty Reduction Strategy Paper, a condition required from IMF and World Bank before a country can be considered for debt relief within the Heavily-Indebted Poor Countries initiative. Are we now accepting that we are a heavily-indebted poor country? There is a lot that needs to be addressed under this condition. In terms of economic policies, the government seems to be clueless.

Then lastly, there is this condition: “Obtaining financing assurances regarding Zimbabwe’s ability to service and sustain its debt.” This seems to be a very hard nut to crack and it requires serious reforms. The image of the government has been tainted due to policy inconsistencies and will militate against fresh funding.

Against this background and taking into consideration the three steps towards normalisation of relations and financing, Zimbabwe is still a long way before the IMF considers offering financial assistance. Change in the way government handles its affairs is needed and this does not happen overnight given how rigid the government is.
Furthermore, from past experiences we have noticed that IMF conditions are often not popular with many governments and the electorate in general. There are often more perceived by governments as too stringent and repressive and therefore a threat to the ruling party’s political survival. As Zimbabwe contemplates the 2018 elections, this may also prove to be a hindrance to the Lima re-engagement plan.

Moyo is an economic and financial consultant. He writes in his personal capacity.