Zimbabwe: IMF Dialogue a Step Forward
21 June 2013
Last week quite a timely event happened.
After a decade-long impasse, Zimbabwe’s cabinet finally submitted to an International Monetary Fund (IMF) Staff Monitored Programme (SMP) after recently approving it.
While an SMP remains an informal and flexible instrument for dialogue between the IMF staff and a member country on its economic policies, it is not a formal re-engagement with the IMF executive directorate.
Under the SMP a country’s economic reform targets, policies and programmes are monitored by a nominated team of IMF staff for an agreed period.
Past discussions towards an SMP between Zimbabwe and the IMF had been held back by two issues; the timely reporting of data and the much-debated problem of ghost workers in the civil service.
There have been conflicting statements concerning the issue of ghost workers in government, but either way it would appear the air has been cleared and the IMF team is here until the end of this year.
This re-engagement with the IMF, albeit at SMP level, is a step in the right direction and should pave the way for the normalisation of relations between Zimbabwe and the IMF.
This is crucial for economic recovery as a normal relationship with the IMF will also act as a positive signal to other potential multilateral and bilateral lenders, as well as investors. Currently estimated at US$11 billion, the non-payment and accumulation of arrears on Zimbabwe’s external debt have been cited as a major reason for the IMF cutting off the country from accessing financial resources, not really sanctions as often claimed by Zanu PF.
Zimbabwe’s balance of payment constraints have been a challenge and a normal relationship with the IMF will play a role in helping the country over this debt burden and investor confidence.
So far the country has developed a reasonable track record of maintaining macro-economic stability through containing inflation, implementing fiscal reforms and putting together a comprehensive and credible arrears clearance strategy as part of the medium-term plan, but this needs to be supported by key development partners.
Financial sector reforms, broadening access to financial services, and the restructuring and recapitalisation of the Reserve Bank will remain elusive without deeper measures of commitment from the government.
Another key hurdle is Zimbabwe’s bloated civil service, which is gobbling up to 75% of fiscal revenues, crowding out growth opportunities offered by investment in social and economic infrastructure.
The civil service must be overhauled and aligned with the requirements of sound financial management, not political patronage.
This would shake out inefficiencies brought about by infiltration of civil service structures by politically driven patronage networks.
Finance minister Tendai Biti recently said it was unfair that a mere 2% of the population was gobbling up 76% of the national fiscal space in wages.
Some excess fat and redundant deadwood must definitely go. That will only be possible if this first step taken by cabinet last week is built upon to lead the country back into the community of nations and progress.