Chinamasa engages IMF at US meeting

via Chinamasa engages IMF at US meeting – The Zimbabwe Independent April 17, 2015 by Kudzai Kuwaza

FINANCE minister Patrick Chinamasa is in Washington DC to attend the International Monetary Fund (IMF)’s 2015 spring meetings which begin today and end on Sunday hoping to use the forum to engage multilateral lending institutions.

Zimbabwe is implementing a 15-month Staff-Monitored Programme (SMP) with the Bretton Woods institution, but the IMF has ruled out financial assistance until Zimbabwe settles its debt of US$142 million in overdue payments.

Zimbabwe has an external debt of at least US$10 billion.
Chinamasa’s delegation comprises Reserve Bank of Zimbabwe governor John Mangudya, Finance permanent secretary Willard Manungo and other senior government officials.

An IMF mission, led by Domenico Fanizza, was in the country from February 25 to March 9 this year to conduct the first review under the 15-month SMP approved by the fund in November 2014.

A report has been scheduled for IMF management approval this month.
Fanizza noted in his review report: “Despite substantial economic and financial difficulties, the (Zimbabwean) authorities have made progress in implementing their reform programme, meeting all quantitative targets and structural benchmarks for the first review under the SMP.

“Moreover, they have stepped up re-engagement with creditors by raising payments to the World Bank and by developing a roadmap to seek debt rescheduling under the umbrella of the Paris Club.
“These developments constitute important steps toward re-engaging with international financial institutions. The mission welcomes the actions to restore confidence in the financial sector, and the progress to clarify the indigenisation laws, which were modified in January.”

Despite noting progress, Fanizza observed a number of serious challenges the government has to address to achieve economic recovery which is proving elusive.

“Economic prospects remain difficult. Growth has slowed, and we expect it to weaken further in 2015. Despite the favourable impact of lower oil prices, the external position remains precarious, and the country is in debt distress. The authorities are committed to intensifying their efforts to lay the ground for stronger, more inclusive and lasting economic growth.”

At Independence in 1980, Zimbabwe was the most industrialised country in sub-Saharan Africa after South Africa, but has been de-industrialising at a fast pace as the economic crisis maintains its grip.

Chinamasa announced in his budget for 2015 that 4 610 companies closed shop between 2011 and 2014 resulting in the loss of more than 55 000 jobs.

Fanizza said the policy reform agenda consists of a number of major areas which include balancing the primary fiscal accounts, restoring confidence in Zimbabwe’s financial sector, improving the investment climate and garnering support for a strategy to clear arrears with multilateral institutions.

On restoring confidence in the country’s financial sector, Fanizza said: “A sound operational framework for the Zimbabwe Asset Management Company (Zamco) is key to freeing the banking system from the burden of high non-performing loans (NPL) that limit the banks’ ability to extend credit to the private sector and keep the cost of credit high.”

“Moreover, completing the recapitalisation of the RBZ will enhance its ability to supervise the banking sector.”
To date, Zamco has taken over NPLs worth US$65 million as it looks to free the banks of the onerous loans. It has also closed struggling banks such as Allied and AfrAsia.

On balancing the primary fiscal accounts, Fanizza stressed the need for the government to reduce its wage bill, which is gobbling more than 80% of revenues.

“The commitment to eliminate the primary fiscal deficit re-affirms Zimbabwe’s intention to further raise its capacity to repay. The top priority is to move resources from a too high wage bill to much-needed capital and social spending,” Fanizza said.
“To this purpose, the authorities intend to work toward reducing the share of revenues absorbed by the wage bill.”

Cabinet has since set up a wage bill committee spearheaded by Chinamasa and Labour minister Prisca Mupfumira to conduct a headcount of civil servants in various ministries and come up with recommendations to help cut the wage bill.

The committee will also have to deal with the issue of ghost workers, which are believed to be a huge financial burden on the wage bill.

More than 75 000 ghost workers, most of them unqualified Zanu PF militias and supporters, were unearthed in the civil service through a comprehensive payroll and skills audit done by Ernst & Young (India) on behalf of the Ministry of Public Service and released in 2011. The audit indicated that Zimbabwe’s civil service is in a shambles and has become a haven for mainly Zanu PF patronage.

However, Chinamasa this week said squabbles in the unity government (2009-2013) rendered it impossible to complete or implement the audit
On improving the investment climate, Fanizza noted: “The authorities plan to publish on the website of the Zimbabwe Investment Authority a simplified summary of the Indigenisation and Economic Empowerment Laws. In addition, they are reviewing the 1985 Labour Relations Act to adapt it to the competitiveness challenges arising from a fast-changing global environment.”

However, government’s efforts to promote investment could be stalled by its recent move to introduce amendments to the Act, primarily giving line ministers power to approve indigenisation plans for sectors under their purview, with the Indigenisation ministry only issuing compliance certificates on the recommendations of line ministers after their assessments.

There is widespread concern this would not only add further confusion to the process, but could fuel rent-seeking behaviour by government ministers.

Economist John Robertson feels the IMF is not being as tough as it should be with government in its SMP programme.

“There is too much diplomacy, they are being too polite with each other,” Robertson said. “Maybe they criticise each other behind closed doors, but in the report they are very complimentary, which means either they are not setting their standards very high or their expectations are very low.”

He said government has not done enough of what is required under the SMP and expects the Bretton Woods institution to take a tougher stance when dealing with the country.