Govt muddles through reforms

via Govt muddles through reforms – The Zimbabwe Independent August 21, 2015

THE review of Zimbabwe’s economic performance under the International Monetary Fund (IMF)’s Staff-Monitored Programme (SMP) later this month has stampeded authorities to muddle through several reform measures which include the current amendment of the Labour Act, as government moves to appease multilateral institutions, the donor community and potential investors in a desperate bid to secure funds.

Kudzai Kuwaza

An IMF team is expected in Zimbabwe from August 31 to September to assess the country’s adherence to its commitments under the SMP.

Government officials said the ongoing moves by government to expedite the amendment of the Labour Act which has been widely viewed as rigid and unfriendly to investors should also be viewed in the context of the government’s pledges under the SMP. The amendments were prompted by a Supreme Court ruling which allows employers to terminate workers’ contracts on three months’ notice without paying retrenchment packages which resulted in more than 20 000 losing their jobs.

The amendments sailed through the National Assembly on Tuesday and Senate yesterday, and now await being signed into law by President Robert Mugabe. Officials say they would be presented to the IMF team as progress towards labour law reforms.

This is despite business dissociating itself from the amendments, arguing they ignored their input and would lead to even more company closures while repelling desperately-needed investors. In a letter of intent, co-authored by Finance minister Patrick Chinamasa and Reserve Bank of Zimbabwe (RBZ) governor John Mangudya, to the International Monetary Fund (IMF) MD, Christine Lagarde dated April 17 2015, government pledged to cut its the wage bill to create more sufficient room for development funding and acknowledged that the Indigenisation and Empowerment Act continues to be perceived as obstacles to foreign investment “purportedly for lack of simplicity.”

Among the benchmarks set by the programme is the cutting down of the wage bill, which gobbles more than 80% of the revenues, restructuring parastatals, strengthening the financial sector and labour law reforms. Under the SMP, running from November 2014 to December this year, Zimbabwe committed itself to strengthening its external position as a pre-requisite for arrears clearance, resumption of debt service and restoration of access to external financing.

Government also pledged to consolidate its fiscal position, accumulate international reserves and mobilise international support for resolving the country’s external debt situation, while restoring confidence in the financial sector and improving public debt and financial management.

In addition it promised reforms to enhance the business climate, boost productivity and competitiveness as well as build confidence.

On parastatal reforms promised by Chinamasa when he presented the 2015 national budget in November last year as well as in the April letter, government promised to restructure state or public enterprises institutions such as the National Railways of Zimbabwe, Air Zimbabwe, Zimbabwe Broadcasting Corporation and the Civil Aviation of Zimbabwe. Government gave parastatals, a perennial burden to the fiscus, the green light to lay off workers using the Supreme Court ruling to reduce their bloated workforce.

“This will be used to demonstrate to the IMF team that the reform of parastatals is work in progress,” said a senior government official.

The country is grappling with a severe liquidity crunch and is severely weighed down by a debt over hang of about US$10 billion.

The huge debt and arrears have made it difficult for the country to attract new finance from the private sector or attract funds from multilateral institutions and donor countries, hence government’s decision to engage creditors for relief.

There is still much to be done towards the privatisation of parastatals, which has been on the cards since the early 1990s, as pledged by Chinamasa and Mangudya in the letter of intent.

“We have started work on restructuring parastatals to reduce fiscal costs, improve accountability and service delivery. We have identified 10 state-owned enterprises that after restructuring will play a more important role in the implementation of ZimAsset,” Chinamasa and Mangudya wrote in their letter to Largarde.

The parastatals supposed to be restructured include Agricultural and Rural Development Authority, Cold Storage Company, Grain Marketing Board, Air Zimbabwe, TelOne, Civil Aviation Authority of Zimbabwe, National Railways of Zimbabwe, Industrial Development Corporation of Zimbabwe, Zimbabwe National Water Authority and Zimbabwe Power Company. None of them have been really commercialised or privatised which could be a mark against it on the IMF scorecard.

Government also pledged to strengthen the banking sector by reducing non-performing loans in the banking sector.
However, the most arduous task on the list of deliverables in Zimbabwe’s programme with the Bretton Woods institution is the cutting of the wage bill.

In his mid- term fiscal presentation, Chinamasa said government intends to cut the wage bill to less than 40% of revenues, which was widely seen as implying retrenchment of a sizeable chunk of the 300 000-strong workforce.

Labour minister Prisca Mupfumira however dismissed wholesale retrenchments as “laughable”, saying government would reduce the wage bill through other cost-cutting measures. The huge task Chinamasa faces in reducing the wage bill was revealed when he announced on April 13 this year that he would suspend bonuses for civil servants for 2015 and 2016 due to financial constraints.

Less than a week later, Mugabe used his Independence Day address in Harare to shoot down the proposal saying he had not been consulted, suggesting government is not reading from the same script on the issue.

An audit of the civil service by Ernst & Young (India) in 2011 unearthed 75 000 ghost workers in the civil service – mostly Zanu PF supporters but it appears government for political reasons is unable or unwilling to remove them from the payroll.

Government has also done little to clarify its indigenisation laws despite the lack of clarity and consistency being a cause for concern to the IMF and potential investors.

In addition, government appears to be shooting itself in the foot by failing to conclude its land reform programme with 23 white-owned commercial farms listed for confiscation last week, which has led to questions being asked about its commitment to property rights.

However, there has been progress on strengthening of the financial sector with the closure of troubled financial institutions such as AfrAsia and Allied banks, with the Reserve Bank of Zimbabwe (RBZ) appointing the Deposit Protection Corporation as Tetrad’s provisional judicial manager to oversee the day-to-day running of the bank.

Among other measures, the Reserve Bank of Zimbabwe Debt Assumption Bill that recently sailed through both the National Assembly and Senate would enable the central bank to restore its function as a lender-of-last -resort.