The International Monetary Fund (IMF’s) decision to remove remedial measures applied to Zimbabwe earlier in the week could boost government’s confidence amid frantic efforts to secure US$600 million to clear arrears with the African Development Bank (AfDB), but analysts say Harare’s prospects of securing new funding remain poor in the absence of reforms.
By Taurai Mangudhla
The executive board of the IMF approved on Monday, on a lapse-of-time basis, the removal of the remedial measures applied to Zimbabwe that had been in place because of the member’s overdue financial obligations to the Poverty Reduction and Growth Trust (PRGT), effective November 14, 2016.
“These measures are declaration of non-co-operation with the IMF; the suspension of technical assistance which had already been partially lifted and the removal of Zimbabwe from the list of PRGT-eligible countries,” reads part of the IMF statement.
This follows Zimbabwe’s full settlement of all of its overdue financial obligations to the PRGT of SDR 78,3 million (about US$107,9 million) on October 20 2016. Zimbabwe had been in continuous arrears to the PRGT since February 2001 and was the only case of protracted arrears to the PRGT. Zimbabwe is now current on all of its financial obligations to the IMF.
However, the IMF explicitly stated Zimbabwe’s chances of securing new funding, among other things, depended on the country’s ability and progress on implementing structural reforms to restore fiscal and debt sustainability.
“Notwithstanding the settlement of overdue financial obligations to the PRGT and the removal of remedial measures, consideration of any future request for IMF financing would also require Zimbabwe to comply with other applicable IMF policies, including to resolve its arrears to multilateral creditors including the AfDB, the World Bank, and other multilateral institutions, bilateral official creditors, and external private creditors if any and implement strong fiscal adjustment and structural reforms to restore fiscal and debt sustainability and foster private sector development,” said the IMF.
The IMF has proposed a list of reforms to Zimbabwe, including clearing the member’s debt which is unsustainable, cutting recurrent expenditure to sustainable levels and clarifying the country’s indigenisation policy. However, uncertainty and lack of clarity remain around the Indigenisation Act even after several amendments that have actually worsened policy inconsistency.
The country’s civil service wage bill has ballooned, gobbling 96,7% of the cash budget by June 2016 and posing a US$1 billion budget deficit threat by year-end. Zimbabwe’s 2016 budget is US$4 billion but has been underperforming due to dwindling revenue collection as a result of de-industrialisation in the form of company closures and wholesale job losses. This comes as Zimbabwe is frantically scrambling to secure US$600 million from the regional bank to clear its arrears and avert a catastrophic setback in efforts to rescue the sinking economy.
As reported by the Zimbabwe Independent last week, Harare is seeking funding to clear its arrears and unlock new funding with less than two months before the window for accessing the AfDB bridge facility closes.
However, analysts say chances of securing new funding from the IMF remain slim in the absence of structural reforms which they say resulted in the economic malaise.
Economist and MDC-T legislator Eddie Cross said the country needs reforms before IFIs can seriously consider releasing new funding. In the absence of reforms, he said, Zimbabwe has a “zero” chance of securing new funding.
“The Lima process assumed that the undertakings by the Zimbabwean government during the three Staff-Monitored Programmes that were completed this year, were all being met and adhered to,” said Cross, adding the announcement of the intent to introduce bond notes was interpreted to mean that the economy was in grave difficulties, in contradiction to the stated position of the Ministry of Finance.
Bond notes are a surrogate local currency soon to be introduced in Zimbabwe and backed by a US$200 million Areximbank facility with a view to providing an export incentive of up to 5% while at the same time combating externalisation. Cross said in subsequent investigations it has been found that the domestic debt has been understated and that the budget deficit is not below 5%, but in fact hovers around 20%.
“It is now clear to all that we have not met our targets and may have been falsifying reports to the IMF. You can lie to anyone, but never lie to your banker and always tell them the bad news first before they hear it from others. We have violated both rules and unless we get our macro-economic fundamentals back on track, we can expect no support from the IMF or anyone else,” Cross said.
Economist John Robertson said the IMF and the World Bank use the same standards and demand reforms as a pre-condition for renewed funding.
“There are no chances for Zimbabwe to get funding from the IMF or World Bank without reforms. There are very slim chances perhaps from people who use different standards like the Chinese, but remember they were also raising concerns,” Robertson said.
“We are really struggling, the foreign earnings are down and we haven’t done enough to resolve the problem. We can’t re-tool,” Robertson added. We need foreign currency to re-tool, we need help and I don’t see anyone agreeing to help us when we remain fixed with policies that damage us in the first place,” Robertson said, adding, “The land has no value and the Indigenisation Act hasn’t been repealed. It (indigenisation law) has been amended but that’s not enough.”
Robertson said Zimbabwe’s policy environment, which has seen it ranking among the worst countries on the World Bank Ease of Doing Business surveys, has eroded confidence among investors.
“Right now anyone who can get their money out of Zimbabwe is doing so at whatever cost so it remains unsafe, we are actually repelling investment,” said Robertson.
Economist and former economic planning minister Tapiwa Mashakada said the IMF’s funding decision is not isolated from the multilateral institutions hence the need for Zimbabwe to make good on its obligations with other IFIs.
“The IMF looks at the holistic debt position of Zimbabwe that influences its decision, but most importantly economic reforms are a necessary condition. Zimbabwe’s sovereign risk also remains high,” Mashakada said.
Economist Vince Musewe said there will be no new funding from the IMF, as clearly stated by the institution, without fundamental reforms.
“We must implement Lima reform strategy first and that actually takes political will,” Musewe said.