HomeAnalysisWhat Zim can do with IMF windfall

What Zim can do with IMF windfall

By Chenayi Mutambasere

SINCE the release of Special Drawing Rights (SDR) we all have been preoccupied with understanding this IMF initiative and at the centre of this quest for knowledge has been fear. Zimbabweans, it appears, have learnt to panic whenever the current government gains access to large sums of money. The economy in its current state is in desperate need of an uplift but alas where to begin?

Resilience first

We must maintain a resilience-first agenda. The reality for Zimbabwe is that while the Covid-19 pandemic means the death toll and infection rate appear low, we haven’t yet achieved herd immunity to relax. Currently only 32% of adults have been fully vaccinated.

While the exact level that needs to be vaccinated to achieve herd immunity is yet to be established by WHO, most scientists are recommending a target of 70% of the total population.  So we are quite far off.  It’s also impossible to consider Zimbabwe’s herd immunity without looking closely at South Africa whom we depend on economically. SA has only had 12% double vaccinated as of figures week ending September 4.  In the first quarter of 2021 we surely realised if South African can’t breathe then for sure Zimbabwe is dying.  With all this in mind it would be prudent to assume that Zimbabwe will likely go through a 4th wave before we get to herd immunity. Any injection of funds must thus be focussed on fighting the pandemic and mitigating its impacts on the people of Zimbabwe.

Inadequate access to forex

While both Finance minister Mthuli Ncube and the RBZ governor John Mangudya have gone on record claiming that Zimbabwe’s finances are reporting a good bill of health, the reality is that for an import-heavy country, we do not have adequate foreign currency to meet our demands. The latest MPS figures must be considered with a backdrop of reduced consumption due to lockdown conditions for a significant part of 2021.

As restrictions lift and things get back to normal consumption will increase. This is already being observed in the recent weeks with a lift in some of the restrictions, a rocketing parallel market rate which is over ZW$145 to the USD.

In addition the presence of a backlog in the disbursements of currency bought at the interchange auction also signifies indequate foreign currency reserves.  On this basis it is likely that unlike other countries, Zimbabwe doesn’t have the luxury of keeping the SDRs as reserves. The country is in desperate need of foreign currency, therefore, it is fair to assume that the minister will exchange the SDRs for usable currency at the IMF voluntary market. On this basis any analysis should assume that the majority of the balance will be converted to usable currency.

The most important caveat associated with the conversion of SDRs to usable currency is that SDRs do incur interest charges when the amount of SDRs held by the state is below the amount allocated. The interest is expressed as the equivalent of an annual bond yield. This interest is calculated as being the higher of 0,05% and the interest rate calculated using the foreign exchange values of the top-5 IMF currencies (Chinese renmimbi, Japanese yen, euro, US dollar and pound sterling). The combined market interest rate is compared with 0,05%. Therefore the SDR interest rate is sensitive to the performance of financial markets. For most of 2019 it was trending around 1% being impacted by Brexit and US domestic market policies.

As herd immunity is achieved in these countries and financial markets return to normalcy there is an expectation that this interest rate may go up to 2% by the end of next year.

Being cognisant of these preceding facts i.e. Covid-19 resilience and a cost of capital on the SDRs some key recommendations or areas to champion to aid economic recovery would be as follows:

Educate to vaccinate

The notion that people will become vaccinated because we tell them to has not worked the world over and is least likely to work in Zimbabwe where especially some religion leaders have taken to inspiring conspiracy theories. The government must invest in teaching Zimbabweans about vaccines. This is especially important wherein the vaccination programme is not computerised and like most things in Zimbabwe is subject to abuse through bribery or replica vaccination cards.

As such the vaccination programme must be consented to by all Zimbabweans as opposed to a government directive. This will require localised “educate-to-vaccinate” programmes. Whether through lateral donations or purchase of more vaccines must be acquired as a matter of urgency. These must be distributed within local communities for ease of access.

Enabled local mass vaccination centres should also be aligned to capacitate local district hospitals to cope with handling Covid-19 patients. As well as being able to assist patience in managing non-communicable diseases as this also impacts resilience.

Digitalised response in education

Education in an independent Zimbabwe should be something that we all take for granted. The education ministry should by now be the easiest to run. However, decades of plunder through corruption has meant that the heart of the nation has been left to survive on an operating model fit for a country being run by an apartheid government.  The pandemic has exposed the education sector stresses and with that enabled a widening inequality gap not just for the present but for the future. For a minority elite, children have continued learning using digital tools where in other parts of the country the majority of children have had no access to learning resources on account of both children and teachers not having access to the resources required for digital learning.

We must as a matter of urgency address this so that no child is left behind when it comes to education. Other African countries such as Madagascar and Mozambique are capitalising on solar energy to roll out the use of solar powered devices that can be used for remote learning. Countries such as South Africa have partnered with corporates to provide laptops for use in peri-urban areas.

The idea proposed by the minister of boarding schools creates a sub-elite group and services too few children to make it a worthwhile investment towards mitigating the impact of Covid-19 and beyond.

Reduce the leakage

This latest issuance of SDRs is only the 4th time that this has ever been done. This indicates to all of us the desperate situation the whole world is in. This is the time for policy makers to ensure that Zimbabwe gets maximum return and retention on every dollar.

All right thinking economics observers are making a call for the inter-auction to be reverted to a price discovery mechanism. The pegged rate means that the national purse is subsidising some of Zimbabwe’s largest commercial entities without due process or common purpose. The governor and minister appear to be giving a blessing to all the rent-seeking behaviours presented by the auction all at the detriment of the poorest in Zimbabwe. Every US$1 sold through the auction means the taxpayer has donated $0,55 to the purchaser.

All the while more than half the population are living in extreme poverty. The closure or repurposing of this market is a low hanging fruit that should be implemented as early as yesterday. According to the MPS only 28% of commercial foreign currency demand comes through the auction so changing it would not be overly disruptive under the circumstances. It either operates as a price discovery auction away from a pegged regime or it should be shut down. It’s that simple. Using the MPS of August 2021, US$210 million has been lost through use of the pegged regime in the official auction. This must be viewed in light of the Unicef appeal for US$65 million required to feed all the extremely poor children in Zimbabwe in 2021.

Capacitation of the informal sector

The informal sector is the backbone of the economy being the main source of income for over 60% of adults. The majority of primary industry is within the informal sector and they are the main customers for the service industry.  Having restricted movements hits hard on this sector specifically because the majority rely on daily takings to survive. Ensuring organised structures for the informal sector with provision of amenities that also allow for social distancing.

Considerations should be made for cash income boosts that will enable the sector to restart their business having gone through long periods of low-to-no income. I would also include in this group the elderly that continue to be hard done by poor pension schemes.

The pensioners are also part of the informal sector to subsidise their very low pension benefits. Cash grants to re-enable them to gain some income in the informal sector through farming or otherwise would go a long way in attaining some economic freedoms for this group.

There is also a need to support this sector especially those selling on the streets to operate in Covid-19 safe environments being provided with PPE, safety in accessing public transport. As we know the virus doesn’t move but people do. It is imperative that the transport network supports those that commute to do so in a convenient and Covid-19 safe way.

Economic-political reforms essential

I have recently heard the Minister of Finance proudly proclaiming the plans to pay off debt to the Paris Club and other creditors. Anywhere else in the world this news would be received with much glad tiding. This would be because being in right standing with potential creditors makes the country attractive to investors and also opens new lines of credit.

However, for Zimbabwe this is not the case. Zimbabwe is currently unrated by the credit agencies on account of very high levels of corruption observed through the Expropriation index which is currently 7 which represents the worst level on a scale of 1 to 7. Further the current government is also non-repentant on the infringement of property rights. Announcements of surprise statutory instruments as was seen with the Statutory Instrument 27 earlier this year is viewed as infringement of property rights by investors and reduces investor confidence.

Other activities such as human rights abuses with indications of a state captured justice system also reduce investor confidence. As such, in the absence of new lines of credit and attraction of new investors there is little benefit achieved from debt reduction at this juncture.  Countries like the United States, United Kingdom and unions such as the EU have retained trade embargoes on certain individuals in Zimbabwe. This also increases the risk status for Zimbabwe. Thus until there is a system overhaul and new state actors, debt reduction doesn’t seem an appropriate option for Zimbabwe.

Transparency on  fiscal spending

As I stated at the beginning there is a state of panic amongst the citizenry as they fear the worst whether the usable currency from the SDRs will be subjected to yet another “Covidgate-Drax” type scandal. It is important that the government is open and transparent not only on how the SDRs will be utilised but also how any relief from the budget is then appropriated.

There is a concern over the whole budget spending, not just the SDRs. Civic society must continue to lobby for this on behalf of the citizenry. Opposition government should also keep a close eye on this spending with 2023 around the corner lest they inherit an interest infested treasury with “tonnes” missing.

  • Mutambasere is a writer, development economist and technology architect.

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