via IMF teams to visit Zim | The Financial Gazette 31 Oct 2013
An International Monetary Fund (IMF) team is expected to arrive in Zimbabwe next week as part of a Staff Monitored Programme (SMP) to examine the implementation of the country’s economic programmes.This is the first visit by the Bretton Woods institution since President Robert Mugabe and his ruling ZANU-PF won a landslide victory at July 31 polls, which ended an inclusive government in which the party was sharing power with two MDC formations led by former prime minister Morgan Tsvangirai and former industry minister Welshman Ncube.
Former finance minister Tendai Biti, a member of the MDC formation led by Tsvangirai, was responsible for engagement with the IMF during the inclusive government.
Patrick Chinamasa, who took over the government portfolio, has said he would maintain relations.
The IMF managing director, Chritine Lagarde, approved an SMP for Zimbabwe in June covering the period from April to December 2013.
An SMP is an informal agreement between country authorities and IMF staff. SMPs do not entail financial assistance or endorsement by the IMF Executive Board.
“An SMP is an informal agreement between country authorities and Fund staff to monitor the implementation of the authorities’ economic program. SMPs do not entail financial assistance or endorsement by the IMF Executive Board. This is Zimbabwe’s first IMF agreement in more than a decade,” a June statement by the IMF said.
The statement was issued by the multilateral funder before ZANU-PF formed the current government.
It would appear the staff visit is meant to recalibrate economic targets with the new government and agree on the way forward in terms of policies implemented when Biti was still in government.
“The SMP focuses on putting public finances on a sustainable course, while protecting infrastructure investment and priority social spending, strengthening public financial management, increasing diamond revenue transparency, reducing financial sector vulnerabilities, and restructuring the central bank.”
“In particular, fiscal consolidation efforts aim to move the primary budget balance from a deficit in 2012 to a small surplus in 2013, helping start what should be a gradual rebuilding of fiscal buffers and international reserves.
“A decline in commodity export prices, financial sector stress, and uncertainties related to the election year, however, pose some of the risks to the program,” said the IMF.
The IMF has noted that Zimbabwe made considerable progress in stabilising the economy since the end of hyperinflation in 2009. GDP grew by an average of over seven percent and inflation has remained in the low single digits, thanks largely to the multi-currency system.
Government revenues more than doubled from 16 percent of GDP in 2009 to an estimated 36 percent of GDP in 2012, allowing the restoration of basic public services.
But it said the economic recovery had been accompanied by very large current account deficits in recent years, while international reserves remained very low, at around one week of imports.
“In 2011 and 2012, sizeable public sector salary increases crowded out spending in key areas. Those increases, combined with significantly lower-than-expected diamond revenue in 2012, resulted in fiscal stress, including the accumulation of domestic payments arrears, which necessitated significant adjustment in the second half of 2012. In addition, rapid credit growth combined with slow implementation of financial sector reforms, has exacerbated financial sector vulnerabilities,” it noted.
It warned that the strong rebound seen after the end of hyperinflation appeared to have run its course.
“GDP growth has moderated from over 10 percent in 2011 to an estimated 4,5 percent in 2012, with marginally better growth projected for 2013, as mining output expands. Going forward, sustaining high growth will require determined efforts at economic reform. In this regard, the SMP already envisages important reforms in public financial management, financial sector regulation, and other areas.
The IMF expressed concern over Zimbabwe’s external debt which it said was “high and largely in arrears, cutting off the country from access to most external financing sources”.
“In particular, Zimbabwe remains unable to access IMF resources because of its continued arrears to the Fund. ? strong track record of maintaining macroeconomic stability and implementing reforms, together with a comprehensive arrears clearance strategy supported by development partners, will be essential for resolving Zimbabwe’s large debt overhang.”
The Financial Gazette’s Companies & Markets understands that debt clearance was among key talking points on Zimbabwe during the recent WB/IMF spring meetings attended by Chinamasa.
When the IMF staff arrive in the country next week, they will be confronted by worsening economic fundamentals than they encountered last year.
Company closures have escalated and the country’s economic and political crises have become dangerously intertwined.
Since the IMF’s visit last year, the economic situation has deteriorated, with only 10 out of the 74-companies listed on the Zimbabwe Stock Exchange in good shape while over 700 companies have collapsed, a situation that signifies the importance of the SMP.
A Confederation of Zimbabwe Industries’ manufacturing sector survey released last month revealed that capacity utilisation in the manufacturing sector slid by 5,3 percentage points to 39,6 percent this year, compared to 44,2 percent in 2012.