Zimbabwe’s government evades advice

via Govt evades advice | The Financial Gazette – Zimbabwe News by Shame Makoshori 8 May 2014

Mugabe warned a fortnight ago of an accelerating economic decline in Zimbabwe, which critics blame on profligacy and corruption by ZANU-PF elites and their cronies in government. Speaking during the country’s Independence Day celebrations on Friday, President Mugabe said Zimbabwe was in the midst of a liquidity crunch and that “rapid de-industrialisation” was threatening to accelerate the haemorrhage.

His speech underscored the urgency with which the country needs to take action to avoid an economic implosion, considering that the majority of Zimbabwe’s population of 13 million people are wallowing in abject poverty. Disease and frustration, tension and resentment are also growing, feeding into public anger which could boil over. But if there is anything that President Mugabe’s current and previous administrations have been guilty of, it is ignoring sound advice.

ZANU-PF governments have at no point run short of advice. Useful external and internal counsel, including dozens of blueprints from the International Monetary Fund (IMF) and the World Bank has been freely flowing with no-one to take them up. Implementation has either been fraught with disastrous political undertones or moving at snail’s pace, pushing the country to an extremely precarious state of affairs.

Following Article IV consultation by an IMF team in March, government hinted it was not in a hurry to implement advice from the Washington based development lender. Economic analysts have, however, been urging Harare to embrace the advice as it seeks re-engagement with the international community to unlock funding for its distressed economy. While emphasising government’s commitment to engaging the IMF and implement the Article IV Consultation recommendations, Finance Minister Patrick Chinamasa has refused to cut the size of the country’s civil service and trim the government salary bill.

This would have enabled government to re-allocate funds towards capital projects and help grow the economy. The IMF said economic growth has decelerated following four years of growth. A slump in the prices of key exports like minerals, industry’s lack of a competitive edge and a resilient liquidity crisis has been the major contributors to the crisis. These, along with rising corruption, financial and economic mismanagement, fraud and lack of transparency, have hit real Gross Domestic Product (GDP) growth, which declined to three percent last year, from 10,5 percent in 2012.

“Achieving Zimbabwe’s fuller growth potential over the medium term depends on pursuing strong macroeconomic policies, including by building up fiscal and external buffers and increasing budgetary resources going to non-personnel related spending, and implementing structural reforms to foster investment, improve the business climate, and strengthen governance and institutions, including by increasing the transparency of the minerals regime,” the IMF warned.

Several IMF recommendations have warned against Zimbabwe’s bloated 236 000 civil service, which consumes 70 percent of State revenues. But even after agreeing to rein in its runaway expenditure, government has acceded to worker demands for a pay rise. Pregnant with ghost workers draining US$17,5 million per month from State coffers, the public service wage bill has become the greatest threat to economic recovery.

In fact, debate over ghost workers has completely disappeared from government’s conversations. This confirms government’s aversion to painful decisions that could put it on collision course with the people. Government has not hidden its preference for populist measures for political survival instead of making pragmatic measures.  This has been the tragedy that has confronted IMF-backed austerity measures across Africa where political dynamics have taken precedence over useful advice.

In Zimbabwe, the tragic consequences have been clear for all to see — a free falling economy that has dumped its own currency and a dearth of growth stimulating projects fuelled by a highly consumptive budget. The deadly ripple effects have been felt far and wide, with collapsing industries, and even Zimbabwean embassies going for months without staff pay. Even as indicators point to more painful times ahead, Zimbabwe, which has lost its voting rights to the IMF although it remains a member, appears defiant. Chinamasa has been sticking to the administration’s populist policies, and protecting Zimbabwe’s right as a sovereign State. He has been ignorant of the fact that it is this militancy that has dragged the country into the mess that it finds itself.

Zimbabwe has about US$125 million of arrears to the IMF, according to the IMF website. Its overall debt is estimated at about US$6 billion, about half the country’s GDP. “The engagement with the IMF will continue,” Chinamasa told reporters after meeting the IMF team in March.

Apparently giving a cue on the country’s direction in its relations with the Bretton Woods institution, Chinamasa said: “I impressed upon the IMF that we want a constructive engagement. We shall not have a debtor/creditor engagement. We are a debtor yes, but this debt accumulated because of sanctions.”

“We have entered into a payments plan and so far we have been fulfilling it. It is a token payment because right now we have no capacity to service it because you are looking at a debt of US$6 billion. It is just a token to show our commitment.

“It is clear that we have not been able to address some of the issues that we discussed on their last visit,” said Chinamasa. Zimbabwe National Chamber of Commerce economist, Kipson Gundani, said the IMF stuck to principle. And Zimbabwe must play ball, or continue to lose on crucial funding, he said.

“The more we delay to implement, the more we delay our engagement with the IMF,” he said.

“On the issues of debt, we can easily apply for debt forgiveness if we engage the IMF. Technically we are least developed country.

“On the civil service, for instance, politicians will not want to retrench people because that has a bearing on future voting. That is why you see that they have even raised civil service salaries,” said Gundani.

Interestingly, while Chinamasa has stuck to nationalist polices, economic commentators have warned that in the absence of progressive economic action, structural shocks that have militated against growth have been gaining traction. Tepid growth would continue, they said.

In the latest signs of continuing recession, government collected US$248 million in February, but spent US$265 million, resulting in a US$17 million budget deficit. On a year-on-year basis, revenues dropped by US$24,3 million to US$500 million at the end of February, from US$524 million at the same time last year. There has been a sharp drop in economic activity in Zimbabwe, a Ministry of Finance report indicated, as highlighted by retreating consumer spending and continued carnage in the vital manufacturing sector, where a further 15 firms collapsed in February in addition to over 700 last year.

Deflationary pressures continued to affect consumer spending power. Demand dipped by up to 30 percent during the period, affecting sales and shaving US$3,6 million off State revenues between January and February. In a way, Chinamasa’s stance on the civil service may be important.

No government would want to retrench and condemn its people to poverty during a crisis, but then, it has been the configuration of Zimbabwe’s budget that has been giving both the administration and multilateral organisations a difficult task. More worrying for analysts was the fact that 96 percent of revenues collected in February were rooted into consumptive expenditure, the bulk of it to salaries.

This has left four percent for investment and capital expenditure, which is supposed to be the backbone for growth and job creation. Several frameworks have been proposed for Zimbabwe to create vehicles that will absorb retrenched civil servants into productive work. These have not been adopted and, as has become tradition, without explanation.

This month, government pressed ahead with hiking civil service salaries, even as the IMF had indicated that Zimbabwe should trim its workforce and cut its salary bill. Independent economic analyst, John Robertson, said this was a serious breach of IMF advice that would have far reaching implications.

“We were already off limits (and) we have actually disqualified ourselves from future help,” said Robertson.

“The impact is that we won’t get help from the IMF,” he said.

The administration recently came under tremendous pressure from both the public service and unions for keeping its workers on salary scales that condemned them to poverty, while top chefs feasted, many times irregularly. The IMF has also impressed upon government on the need for banking, mining and tax reforms.