HomeAnalysisA critical review of Zim’s Poverty Reduction Strategy

A critical review of Zim’s Poverty Reduction Strategy

Government launched the Interim Poverty Reduction Strategy Paper (IPRSP) on September 26, which is expected to run from 2016 to 2018. It is hoped that the successful implementation of the IPRSP should lay a firm foundation for the implementation of a full PRSP.

By Prosper Chitambara

  • The IPRSP is anchored on seven pillars, namely:
  • PILLAR I: Agriculture Productivity, Growth and Rural Food Security;
  • PILLAR II: Social Sectors;
  • PILLAR III: Private Sector;
  • PILLAR IV: Infrastructure and Climate Change;
  • PILLAR V: Environment and Climate Change;
  • PILLAR VI: Gender, Women and Youth Empowerment; and
  • PILLAR VII: Strengthening Governance and Institutional Capacity.

The major problem with this approach is that we are trying to achieve so many things simultaneously within a short space of time with very little resources (spray gun approach). The end result is that we will spread our resources and not achieve much.

It is not a secret that we do not have the capacity to address all these seven pillars within two years. Development must be based on a diagnostic analysis of identifying the most binding constraints and then focus on attacking those binding constraints in a sequential and incremental approach.

The Poverty Reduction Strategy Papers (PRSPs) were first launched in September 1999 by the World Bank. The PRSP framework initially came about as a precondition for countries to benefit from the Heavily Indebted Poor Country (HIPC) initiative.

Countries seeking debt relief through the HIPC initiative had to prepare a PRSP to demonstrate how funds saved from debt servicing would be harnessed to alleviate poverty.

Since then, PRSPs have, however, been expanded in terms of scope and have become key in terms of policy dialogue and negotiations in the countries that receive funding from the World Bank. Countries that urgently require World Bank funding or debt relief can submit an Interim PRSP (IPRSP) for consideration by the Bank.

Hence, most countries that have implemented PRSPs and even Structural Adjustment Programmes (SAPs) did not implement them because they believed in them but rather because they were under fiscal and financial pressures to have their debts forgiven and/or to receive fresh loans from the World Bank and the IMF.

The implementation of PRSPs therefore left many countries more heavily indebted than they were before implementing PRSPs.

More importantly, while the PRSPs were touted as a new approach to dealing with the challenges of development in low-income countries, many critics, however, contend that not much has changed in the ‘substance, form and process of World Bank and IMF programmes.’ In terms of real substance there is not much difference between the PRSPs and the Structural Adjustment Programmes (SAPs) of the 90s.

For instance, the macroeconomic framework in the PRSPs remains steeped in the “trickle-down approach” in the mistaken belief that growth will necessarily lead to development and poverty alleviation.

The experiences of many countries have shown that high growth rates have not necessarily led to high employment, poverty alleviation and a more equitable distribution of the growth dividends.

As a result, a number of growing economies, especially in developing countries, continue to suffer from high unemployment (jobless growth); high income inequalities (ruthless growth); environmental degradation (greenless growth) among other skewed growth patterns.

The IPRSP is predicated on overly ambitious macro-economic targets and assumptions with no clear detail on employment creation and poverty alleviation. The IPRSP projects an average annual growth rate of 7,3% between 2017 and 2018. It is not clear how many jobs are being targeted to be created as a result of the projected average growth rate of 7,3%. Creating decent jobs is the quickest and smartest way of delivering people from the demon of poverty.

The IPRSP targets reducing the current account deficit from over 20% to below 10% of Gross Domestic Product (GDP).

Other targets include improving the import cover to three months by 2018. Budget deficit of 1,2% of GDP in 2017 and 2018. In its latest World Economic Outlook report, the IMF slashed Zimbabwe’s 2016 growth projection further to -0,3%, and in 2017 the economy is projected to weaken by -2,5%.

The IPRSP largely focusses on macro-economic targets with a clear neglect of key development and social targets. In other words, the IPRSP confuses means with ends. The assumption being that once the economy starts growing, everything else will fall into place in terms of development and poverty alleviation. According to the IPRSP, achieving the above growth targets will ultimately result in the realisation of the following poverty-reduction targets: reduce the proportion of people below the FPL (extremely poor) from 22,5% in 2011/12 to 19% by 2018. Reduce the proportion of people below the TCPL (poor) from 72,3% in 2011/12 to 70% by 2018. The IPRSP however does not spell out any poverty alleviation programmes.

Furthermore, the IPRSP is based on the following assumptions: normal rainfall seasons supportive of enhanced agricultural production; continued use of the multicurrency system; stable macro-economic and political environment, supportive of overall economic activity; improvements in foreign direct inflows; improved financial sector intermediation and inclusive financial sector development; and continued re-engagement with the international community, as part of the process of resolving the external debt overhang and unlock new financing for development.

There are, however, no guarantees that the above assumptions will be realised and some of them may prove to be fallacious. For instance, rainfall patterns have become more volatile owing to climate change.

There is also no guarantee that the political environment will be stable and supportive, especially as we approach the 2018 elections.

Improved financial sector intermediation and inclusive financial sector development are unlikely to be realised in light of the dwindling confidence levels in the financial sector following imminent introduction of bond notes. While the idea of introducing bond notes seems positive, it has, however, posed a severe threat to both financial sector and macro-economic sustainability.

There is also no guarantee on the continued use of the multi-currency system. All these factors will affect the growth drivers, thereby affecting the targeted economic growth rate.

In many countries the implementation of PRSPs has had the negative effect of increasing the indebtedness of beneficiary countries. PRSPs have also increased dependency of beneficiary countries on the World Bank and IMF with many countries seeing them as their economic messiahs.

Interestingly, no country has successfully developed based on external or donor dependency/funding. Countries that have successfully developed have seized their economic destiny in their own hands.

The major problem with many developing countries, especially in Africa, is not lack of financial resources but rather mismanagement and misprioritisation of the available resources.

It is also important to note that government has come up with no less than 15 economic development strategies.

There is no guarantee that the IPRSP will be a success where the past plans did not succeed.

The critical question, therefore, should be where are we getting it all wrong? We need to establish the factors responsible for this policy failure/sterility and ineffectiveness. Some of the causal factors include: lack of effective buy-in and ownership of policies from stakeholders (top-down approach); lack of effective, ethical and strong leadership; lack of effective institutions that correct market failures, promote private property, promote innovation, reward responsible risk taking; high corruption and state capture which increases the cost of doing business and uncertainty; and bad initial conditions. It, therefore, becomes critically important for these factors to be corrected.

As a way of laying a solid foundation for development, government must prioritise institutional reforms. Key institutions that are meant to provide building blocks for development have been captured and are no longer serving the national interest. Political expediency has been allowed to override economic rationale.

No country can develop without strong institutions that provide the correct signals to the market through creating strong incentives to reward good behaviour and disincentives to punish bad behaviour.

Chitambara holds a PhD in Economics from the University of the Witwatersrand in Johannesburg. He is a Senior Economist with the Labour and Economic Development Research Institute of Zimbabwe. These New perspectives articles are coordinated by Lovemore Kadenge, president of the Zimbabwe Economics Society. E-mail: kadenge.zes@gmail.com and cell +263 772 382 852.

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