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US$2bn bailout sabotaged

FEARS are growing that the Lima Plan, which seeks to settle US$1,8 billion arrears owed to preferred international financial institutions — the World Bank, International Monetary Fund (IMF) and the African Development Bank (AfDB) — before unlocking US$2 billion in fresh funding is all but dead in the water amid growing indications that lack of comprehensive reforms and a strong lobby against it have thwarted the initiative.

By Bernard Mpofu

Authorities have not been able to meet basic reform benchmarks such as fiscal or budgetary targets and as a result the country’s budget deficit is widening and current account deficit growing, while government has been failing to meet other statutory obligations.

Market sources said increased issuance of Treasury Bills (TBs) could also affect the arrears clearance plan.
Although the total stock of TBs is not known, more than US$1,5 billion worth of the tradable paper is currently held by commercial banks.

The continued reliance on the government-guaranteed paper is crowding out private sector funding at a time local industry is badly in need of fresh capital.

There are also assertions in the market that government is abusing the Real Time Gross Settlement (RTGS) balances to meet its financial obligations.

Besides TBs and RTGS issues, government has been unable to control its overall expenditure vis-à-vis tax revenues, thus extending budget overruns and deepening the economic crisis, broadly reflecting mismanagement of the economy.
Apart from these issues, failure by government to adopt comprehensive reforms has also militated against the Lima Plan.

Government has committed to the IMF, under the Staff-Monitored Programme, to embark on a raft of reforms before full reengagement with the multilateral lender.

Some of the key benchmarks for reforms include reducing the size of the wage bill to re-orient spending towards priority capital and social outlays; improve debt management, develop a comprehensive public financial management strategy, and strengthen value-added tax policy and key processes in revenue administration; and improve the business environment, including a transparent and consistent application of the indigenisation policy and a new comprehensive land reform programme.

The debt-ridden country has also committed to compensate white commercial farmers who lost land during the chaotic land reform programme.

Zimbabwe has further failed to come up with viable strategies for state enterprises reform which are currently haemorrhaging the cash-strapped Treasury.

While the IMF has welcomed the arrears clearance plan, which initially received broad support internationally, government has been unable to come up with new development plans and private sector-led growth initiatives.

Sources said other factors that could sabotage the Lima Plan include the controversial indigenisation policy, monetary authorities’ interventions in May, Statutory Instrument 64/2016, command agriculture initiatives, consolidation of diamond mines and management of diamond revenue and Britain’s exit from the European Union.

The indigenisation, law compelling foreign investors to cede 51% shareholding to locals, has kept investors at bay in an economy desperate for foreign direct investment. Although President Robert Mugabe in April attempted to clarify provisions of the law before an IMF meeting held the following month, the market was left more confused.

It is also understood that the IMF was unhappy after the Reserve Bank of Zimbabwe announced its plans to introduce bond notes, among other things, two days after its May 2 board meeting which government officials attended.

“This appeared like an act of dishonesty on the part of Harare smacking of political chicanery,” a source said.

Growing social discontent and unrest, sources said, is also worrying IFIs and Western governments. The British government, which appeared to strongly backing the Lima Plan, now seems to be backtracking in the face of a strong lobby by local civic society, political parties and powerful diplomats against it. The British government is now demanding that for Zimbabwe to get funding, it must meet three important conditions: respect for human rights; observance of the rule of law and good governance as well as introduction of economic reforms.

Since launching the plan in Lima, Peru, in October last year, government has been hectically promoting the strategy.

Time is, however, running out for the debt-ridden Harare government to settle the US$1,8 billion arrears to access AfDB bridge financing for distressed countries like Somalia, Sudan and Zimbabwe before the end of 2016.

Since Lima, government has taken the plan around the world in a bid to broaden its buy-in.

The lobby against the plan argues that funding Mugabe’s regime at such a critical moment when it is facing unsustainable fiscal pressure, coupled with rising social discontent and unrest, while almost on its knees, would be a great betrayal of the broad pro-democracy movement and those fighting for change in Zimbabwe.

The lobbyists — led by former Finance minister Tendai Biti, who is opposing his successor Patrick Chinamasa and Reserve Bank governor John Mangudya’s plans — say they remain gravely concerned about the economic and political situation in Zimbabwe, including human rights issues, and consequently, there should be no policy shift towards Harare from the international community.

Asked to comment on the Lima Plan, Biti said: “The Lima Plan is all but dead primarily because the Zanu PF government is corrupt and incompetent. You do not need any lobbyists to stop the Lima initiative because it was always doomed from the start. For Lima to succeed, you need comprehensive reforms, but it is not possible to have reforms without reformers. In this government, there are no serious reformers and hence there are no meaningful reforms. This is what is going to kill the Lima Plan.”

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