The executive board of the International Monetary Fund (IMF) concluded Article IV consultation with Zimbabwe on July 5 and the news emerging from that process is not encouraging at all.
Zimbabwe Independent Comment
Fiscal indiscipline has led to high expenditure levels amid economic decline and severely subdued revenues.
Although the government has committed itself to a raft of far-reaching economic reforms designed to improve the business climate and bring greater efficiency to public administration, the steps taken in that direction have been woefully inadequate. We see a recurrence of Zimbabwe’s deadly malady: implementisis, also known as implementation failure. Predictably, the sluggish pace of reforms has come with dire consequences. It feeds into a vicious cycle of turmoil. The economy is creaking under immense strain. With foreign direct investment inflows at a dangerously low level, there is not much capital available, itself the lifeblood of business.
The IMF correctly notes that the economy’s limited access to foreign inflows, coupled with the ensuing fiscal imbalances have become unsustainable, and are being financed by rising domestic borrowing.
Government’s domestic debt now stands at about 25% of gross domestic product, fuelled mainly by the unrestrained issuance of Treasury Bills and dependence on an overdraft facility at the Reserve Bank.
The Bretton Woods institution lists a cocktail of resultant complications. “The expansionary fiscal stance, curtailed net capital flows, and declining investor confidence have resulted in cash shortages. In response the government has introduced capital and current account controls and quasi-currency instruments in the dollarised economy. An overvalued real exchange rate is hurting external competitiveness,” says the IMF.
Reserve Bank of Zimbabwe governor John Mangudya stoked controversy this week when he revealed an intention to print more bond notes, in the name of stimulating economic growth. It caused more alarm. But Zimbabwe does not have a cash problem as such—the country has a production problem. It is vital to ramp up production in all sectors of the economy. That is the only sustainable solution which addresses the fundamental structural weaknesses, instead of merely tinkering with the symptoms.
The deep-seated structural challenges can only be solved though the full and judicious implementation of the economic reform agenda. There are no short cuts. The remedy must be comprehensive, decisive and well-administered.
However, it is important to remember that the IMF is not saying anything new here. The major bottlenecks to real economic turnaround are policy inconsistency, political risk, corruption, inefficient government bureaucracy, and poor access to financing.
This is not rocket science. Policy inconsistency and uncertainty will cease to be a factor when government officials begin singing from the same hymn book. As matters stand, one minister is saying something on Monday but on Tuesday another minister makes a totally different statement. Capital is highly skittish. Foreign investors need assurance that their money is safe.