WITH the Lima Plan — under whose auspices Zimbabwe was pursuing its international re-engagement strategy — facing serious headwinds and virtually stalled, the main question is: What are is option?
Two years ago, government came up with the Lima debt and arrears strategy to repay US$1,8 billion owed to the World Bank, African Development Bank and the International Monetary Fund to secure new funding. This week, in our early pages, we reported that despite coming up with ambitious timelines that have repeatedly been missed, Zimbabwe’s re-engagement process has all but faltered.
The programme is now facing obstacles from usurious interest rates, costly mortgaging of mineral resources, absence of a sustainable economic recovery programme and lack of political will to implement structural reforms. Reserve Bank of Zimbabwe governor John Mangudya recently announced that the debt-ridden country had secured funding to settle World Bank arrears, but nothing has happened since.
Mangudya this week emphasised to us that while government remains still committed to the Lima plan, many obstacles have to be overcome before creditors could accept money at high interest rates and from questionable sources to help out Zimbabwe.
“Funding has been arranged and that payment would be done in synchrony with the implementation of the structural economic reforms that include enhancing investor trust and confidence, state owned enterprises transformation, ease and cost of doing business and fiscal consolidation. This situation hasn’t changed,” Mangudya said yesterday.
Zimbabwe is at a watershed, faced with its most serious economic crisis since 2008. Low productivity and stagnation, exacerbated by low commodity prices, weak regional currencies and a liquidity and cash crunch, in the context of a legacy of policy failures and a context of political instability over President Robert Mugabe’s succession, risk forcing Zimbabwe to slide back to economic chaos and repression.
The gravity of the economic situation forced the Zimbabwean government into a process of re-engagement with the international community. Re-engagement was primarily aimed at attracting new investment and funding to ease the liquidity crisis and fiscal deficit. Improving the business climate and intensified re-engagement of the international financial institutions became critical.
In July the International Monetary Fund (IMF) team which had concluded Article IV consultations on Zimbabwe unequivocally said more work should be done. “The re-engagement process is facing severe headwinds,” IMF said in its recent report on Zimbabwe.
However, while there has been some progress in economic reform, not much has been done in other areas. There is no new and viable economic programme. International engagement does not guarantee the success of long-term reform, but continued isolation will almost certainly lead to irreparable damage. A nuanced process of exerting political pressure balanced with the offer of support has failed. Things are now complicated by the upcoming general elections. Mugabe and his government are unwilling to reform ahead of the polls and that will kill off the process. If the Lima plan fails, what is the option for Zimbabwe?