THE reports on Zimbabwe by the International Monetary Fund (IMF) and the African Development Bank (AfDB) last week are a damning indictment on the country’s fiscal reforms, which have derailed, amid a multi-faceted economic and social crisis.
IMF and AfDB published the reports at a time Zimbabwe is facing severe headwinds characterised by a debilitating liquidity crunch, foreign currency and fuel shortages, prolonged power outages, capacity utilisation of less than 40%, plummeting foreign direct investment and runaway inflation, currently just under 500%.
The AfDB pointed to the need for reforms by government following a visit to the country on a fact-finding mission, two weeks ago.“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 IMF revealed in a report on its 2020 Article IV Consultation with Zimbabwe, following its board meeting in Washington on Monday last week, that the Staff-Monitored Programme (SMP), adopted in May last year, is now “off-track” after government’s failure to meet targets.
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 accessing 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. 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 failure of President Emmerson Mnangagwa’s administration to foster fiscal discipline and implement reforms has been laid bare by the Bretton Woods institution.
The IMF, in its report, painted a grim picture of the state of the country’s economy, projecting mere 0,8% growth this year . This is much lower than the government’s forecast of 3% growth. It also revealed that the country’s GDP had contracted by more than 8%.
“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.”
The IMF said failure to implement the reforms was because of lethargy on the part of government.“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 also observed the slow pace by government in both its re-engagement programme and clearance of arrears.
The IMF report demonstrates the lack of progress by government in implementing reforms to stabilise the economy, according to business consultant Simon Kayereka.
“The IMF report is an indictment on the government,” Kayereka pointed out.“There are a number of aspects exposed in the report and this includes lack of discipline in spending, coupled with lack of accountability in the form of corruption. This points to a government that has learnt nothing from the recommendations given through the SMP framework. In short, there is a lack of trust in our ability to adhere to requirements for reforms.”
The failure by Mnangagwa’s government to implement IMF reforms brings about a sense of déjà vu, as this is not the first time Harare and the Bretton Woods institution have carried out the SMP.
The administration of the then president Robert Mugabe also carried out an SMP with the IMF, with the same objective of restoring macro-economic stability.
However, efforts by then finance minister Patrick Chinamasa to institute measures to cut down on runaway expenditure hit a brick wall as the proposals were spurned for political expediency.
This was amply illustrated in Chinamasa’s 2016 mid-term policy statement when he announced a raft of measures to cut on expenditure.
The proposed measures included cutting the perks of senior government officials and reducing the country’s embassies dotted around the world. The proposals were thrown out by cabinet.
A year earlier, Chinamasa had announced the suspension of bonuses for civil servants for 2015 and 2016. However, less than a week after Chinamasa’s announcement, Mugabe publicly rejected the proposal to suspend the 13th cheque during his Independence Day address.
The former president said the presidium had not been consulted on the issue and declared that bonuses would remain in place. The failed attempts by Chinamasa dampened the letter and spirit of the SMP. The success of the SMP depends on the country’s ability to attract significant investment, according to economist John Robertson.
Economist Prosper Chitambara concurs with the projections of the IMF.“I think that the projection by the IMF is in line with our observations. The growth projection of 0,8% is very realistic,” Chitambara said.
“The small growth will be buoyed by improvement in rainfall which will have a positive impact on agricultural production and electricity generation.”
He said the report shows that the reform agenda has not gone according to plan. Chitambara warned that the unstable local currency is the biggest threat to the economy and will further weaken the country’s investment drive.