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Zim off course: IMF

Mthuli Ncube

Kudzai Kuwaza

INTERNATIONAL financial institutions (IFIs) this week expressed concern over the country’s fiscal indiscipline and sluggish pace of reforms as the Staff-Monitored Programme (SMP) between the International Monetary Fund (IMF) and President Emmerson Mnangagwa’s government hangs in the balance due to failure by Harare to meet set targets.

Officials from IFIs who spoke to the Zimbabwe Independent said they are worried about the country’s budget figures which are far removed from those presented by Finance minister Mthuli Ncube in the 2020 national budget and approved by parliament.

“The figures in the budget approved by parliament are very different from the budgetary figures now,” a well-placed source pointed out. “This makes it very difficult because it is unpredictable. What it is today is different from what it will be tomorrow.”

The concerns raised by IFIs are critical to the success of any SMP between the IMF and Zimbabwe. The SMP, an informal arrangement between the government and the IMF to monitor the implementation of key economic programmes in the country, is crucial for the cash-strapped government’s ability to regain access to funding from IFIs. Government was cut off from access to concessionary funds after failing to pay debt arrears.

A successful SMP would have rekindled the country’s hope of getting funding it desperately needs to turn around the ailing economy characterised by a debilitating liquidity crunch, foreign currency and fuel shortages as well as prolonged power outages and runaway inflation.

Government’s efforts to get a bailout package, even from its “all-weather friend” China, have hit a brick wall due to concerns over fiscal indiscipline, lack of reforms and its checkered debt repayment history.

The IMF revealed in a report on its 2020 Article IV Consultation with Zimbabwe, following its board meeting in Washington on Monday this week, that the SMP, which was adopted in May last year, is now “off track” after government’s failure to meet set targets.

“The government that came into office following the 2018 elections adopted an agenda focussed on macro-economic stabilisation and reforms. This was supported by a Staff-Monitored Programme from the IMF, adopted in May 2019, but is now off track as policy implementation is mixed,” the Bretton Woods institution noted.
However, sources said both the IMF and government remain hopeful that the SMP can be resumed in a re-calibrated format.

“There is hope from both sides that the SMP can get back on track. There will be discussions on the way forward on the SMP with a decision likely to be made by the time the Fund holds its Spring Meetings in April this year,” a source revealed, adding that there is a “51% chance” of the SMP being resumed.

The Spring Meetings will take place in Washington from April 13 to April 19.

The IMF, in its report, painted a grim picture of the state of the country’s economy, projecting a mere 0,8% growth this year. This is much lower than government’s forecast of 3% growth.

“Zimbabwe is experiencing an economic and humanitarian crisis. Macro-economic stability remains a challenge. The economy contracted sharply in 2019 amplified by climate shocks that have crippled agriculture and electricity generation, the newly introduced Zimbabwean dollar has lost most of its value, inflation is very high and international reserves are very low,” the IMF noted in its report.

“The climate shocks have magnified the social impacts of the fiscal retrenchment, leaving more than half of the population food insecure. With another poor harvest expected, growth in 2020 is projected at near zero with food shortages continuing.”

“Notable reforms include a significant fiscal consolidation that has helped reduce the monetary financing of the deficit, the introduction of the new domestic currency in February 2019, the creation of an interbank FX (forex) market, and the restructuring of the command agriculture financing model to a public-private partnership with commercial banks,” the IMF noted in its report.

“However, uneven implementation of reforms, notably delays and missteps in FX and monetary reforms, have failed to restore confidence in the new currency.”
The report noted the slow pace by government in both its re-engagement programme and its clearance of arrears.

“Re-engagement with the international community continues to face delays. The Zimbabwean government has yet to define the modalities and financing to clear arrears to the World Bank and other multilateral institutions, and to undertake reforms that would facilitate resolution of arrears with bilateral creditors.

“This continues to constrain Zimbabwe’s access to external official support. As a result, the authorities face a difficult balance of pursuing tight monetary policy to reduce very high inflation and prudent fiscal policy to address the macro-economic imbalances and build confidence in the currency, while averting a crisis,” the IMF noted.

“While the 2020 budget includes a significant increase in social spending, it is likely insufficient to meet the pressing social needs. Absent of a scaling up of donor support, the risks of a deep humanitarian crisis are high.”

The IMF noted the need for government to ensure fiscal discipline to rein in inflation and stabilise the currency.“Notwithstanding efforts in 2019 to tighten the fiscal stance and contain quasi fiscal operations by the central bank, (IMF) directors noted that pervasive deficits remain and could be exacerbated by the need to respond to the humanitarian crisis.

“Directors called for non-essential spending cuts, including decisive reforms to agricultural support programmes, to allow for social spending needs. They underscored the importance of public financial management and enhanced domestic revenue mobilisation efforts,” the IMF noted.

“Directors stressed that eliminating deficit monetisation would not only be crucial for fiscal sustainability, but it would also serve as a precondition for the stabilisation of hyperinflation and the preservation of the external value of the currency.’

The Bretton Woods Institution warned against “continued recourse to collateralised external borrowing on commercial terms as this may potentially complicate any future arrears clearance operation.”

The IMF also called for enhancing central bank independence and transparency, including the timely publication of monetary statistics.

This week, the African Development Bank (AfDB) also pointed to the need for reforms by government after its visit to the country on a fact-finding mission last week.

“The directors noted that despite some positive results, reform coordination in the country remains a challenge, against a backdrop of a continuing general rise in poverty levels, especially in the urban areas,” the AfDB noted in its report.

The delegation met Mnangagwa and officials from various ministries, civil society, private sector and multilateral financial institutions, during which they were briefed on the current macro-economic, social and political environment in the country.