Business Weekly (Zimbabwe)
Zim dumps IMF programme
ZIMBABWE is contemplating not renewing or embarking on yet another Staff Monitored Programme with the International Monetary Fund (IMF) as authorities believe the country can now follow through with its reforms without any supervision.
A Staff Monitored Programme (SMP) is designed to support member countries’ reform agenda and Zimbabwe went through one for the period between May 2019 and March 2020.
Zimbabwe anchored its SMP on the Transitional Stabilisation Programme (TSP) with the key objective of returning the country to macro-economic stability, access external funding, and assist in re-engagement efforts to the international community.
While at the last Article IV Consultation and review progress held in September last year, the IMF had raised concerns mainly on issues to do with currency and price instability, Zimbabwe has since implemented sweeping reforms that seem to be on course to allay the IMF’s concerns.
In his statement back in September Gene Leon, who led an IMF mission, said the key challenge since the start of the SMP had been Zimbabwe’s inability to “contain fiscal spending consistent with non-inflationary financing and tighten monetary policy to stabilise the exchange rate and start rebuilding confidence in the national currency”.
IMF’s representative to Zimbabwe, Patrick Imam, weighed in and said; “policy implementation under the SMP has been largely satisfactory, albeit with costly delays in implementing measures supporting the new domestic currency”.
He said delays in introducing monetary/forex market reforms and a lack of confidence in policy implementation had fuelled inflation and worsened Zimbabwe’s economic situation.
“Distortions caused by multiple exchange rates, and a refusal to move quickly to a market-determined exchange rate, have exhausted all the country’s external buffers,” said Imam then.
But since the last review, Zimbabwe has put in place a raft of measures that have brought exchange rate stability with the Zimbabwe dollar strengthening against the greenback for the last six consecutive weeks.
Inflation seems to have slowed with month-onmonth inflation for August moving to a single digit of 8,44 percent and is now on course to close the year at around 5 percent according to authorities. As a result, finance ministry officials think that it might no longer be necessary for the country to renew or embark on another SMP.
Finance and Economic Development Minister Mthuli Ncube, fielding questions after a meeting with editors from various media houses held this week, said so much time has elapsed since the end of the last SMP and that it might no longer be necessary to recalibrate it.
“I am not so sure if recalibration will make sense because it’s almost nine months since the last programme (SMP) was in place.”
He questioned the rationale of embarking on another one given that the SMP was anchored on the TSP, which in his assessment was followed “to a T”.
He said Zimbabwe had even over-performed in some of the areas something which the IMF had also acknowledged.
“So the question is, do we need to be on an SMP because we have shown that on our own, without any monitoring by anyone, we can follow a very disciplined and targeted reform programme. That’s the question that’s out there,” said Minister Mthuli.
His deputy, Clemence Chiduwa, concurred and added that Zimbabwe had missed a few SMP indicators that have since been achieved.
He said on the first visit by the IMF review team, Zimbabwe had achieved 100 percent of the indicators while on the second visit Zimbabwe had missed only one indicator out of the 15, which was money supply.
In the last few months, the central bank has since tightened money supply growth with the results being felt across the economy and even triggering calls by economic players that the grip is too tight.
“So I can assure you that in terms of what we had set ourselves to do in the TSP programme, we are on track and I think in terms of recalibration or whatever form, the new SMP is going to take, it is something we are going to look at and see if it is necessary, said Deputy Minister Chiduwa.
Minister Mthuli said the TSP had ticked most of the boxes with both the fiscal and current account deficit having been eliminated.
He claimed that expenditure had largely been contained with the Government no longer running an overdraft at the central bank. Issuance of TBs is now only on budget while the public sector wage bill is now below 50 percent of total revenues from 92 percent in 2017.
The achievement of the latter has, however, left civil servants earning salaries below the poverty datum line. An economic expert who requested for anonymity agreed and said the question is not whether Zimbabwe is or not on an SMP but on its ability to follow through with its reform agenda.
He described 2020 as a year of turnaround as the economy had shown its resilience and performed against expectations.
“The SMP is just a means to an end, and I would like to believe Government is already doing what needs to be done and there is nothing more an SMP can do right now,” he said.
He, however, said there still a lot that needs to be done including closing the exchange rate gap between the auction system and the parallel market.
He also said at the moment there is probably “obsession with the currency stability” and yet there are other areas that need attention such as the salaries of government employees.
“There is an urgent need to pay government workers so that we keep the skills within our borders. Once we lose these skills it will be expensive to get them back.”
Government workers such as teachers are currently on strike citing incapacitation with wages having been eroded by hyperinflation.
The migrating from an unfunded Pay as You Go pension arrangement to a funded Defined Benefit Pension Scheme should however be a welcome development for the civil services sector.
The pledge to immediately reform parastatals is also lagging with none of the targeted state-owned enterprises having been privatised or reformed as planned. Some are however at various stages of reform although that will now be outside the TSP as originally announced.