Zimbabwe’s economic crisis deepens
THE International Monetary Fund (IMF), from which international investors and lenders take a cue, has warned that Zimbabwe’s economic problems have worsened, and that President Robert Mugabe’s government should not “wait and needs to act now”.
The warning, which was given by an IMF mission headed by Domenico Fanizza which came into the country for discussions on the 2016 Article IV Consultations and the third and final review under a 15-month Staff-Monitored Program (SMP) approved by IMF management in October 2014, came as food insecurity, poverty and unemployment worsened.
Zimbabwe’s economy was once a beacon on the continent, and came only second to South Africa’s in the southern African region.
But it has since slipped to eleventh position, only bigger than that of Lesotho, Malawi, Namibia and Mauritius.
“What I want to stress is that the country‘s economic difficulties have deepened but sound policies can bring about a strong economic potential,” Fanizza told a roundtable discussion soon after his mission had issued a report at the conclusion of its mission.
The mission’s report said: “Zimbabwe cannot wait and needs to act now. The El-Nino induced drought has hit the economy hard. Lower commodity prices and the appreciation of the US dollar have compounded difficulties.”
It emphasised that policy action was “needed to reverse this trend”.
With the economy shrinking and the population restless, government had hoped the mining sector would support the ailing economy, but the resources sector is now plagued by weakening commodity prices.
Now, mining companies are fighting to preserve operations through cost cutting and optimisation initiatives.
Fanizza said the SMP was an initial step towards reform and re-engagement with the international community but a comprehensive and ambitious economic transformation programme was needed to revive the Zimbabwean economy and to cement support among international partners.
“Now that Zimbabwe has successfully met all quantitative targets and structured benchmarks under the third and final review of the Staff Monitored Programme, that’s good news but this is just the preliminary work,” he told delegates to the roundtable, which was attended by bankers, captains of industry, diplomats and other stakeholders.
The roundtable was organised by the IMF in conjunction with the Ministry of Finance and Economic Development.
“It is like when you want to run a marathon, you train and warm up in the track field. But doing the race is something completely different. This (positive SMP review) means that Zimbabwe is now going to run the race and I am confident that Zimbabwe has the capacity to get to the finish line,” he said.
In an interview before the IMF’s report, economist Godfrey Kanyenze, had told the Financial Gazette that the country’s economic situation was worsening.
That view has been reiterated by several other stakeholders, including industrialists who warn that de-industrialisation in the economy has escalated.
While Zimbabwe’s economy grew after the country abandoned its local currency in favour of multiple foreign currencies to help contain hyperinflation, it has in fact remained weak.
Before the adoption of a multiple currency regime, the country had suffered a cumulative economic decline of 51 percent between 1999 and 2008.
This had hammered its standing in the region, pulling it to 11th position in the regions from its previous spot as the region’s second largest economy.
Zimbabwe’s economic growth averaged 10,6 percent during the period between 2009 and 2012, but growth declined to an estimated 4,5 percent in 2013, 3,8 percent in 2014 and 1,5 percent in 2015.
Despite the dismal performance of the economy, Finance Minister, Patrick Chinamasa, has projected a growth of 2,7 percent this year, driven by mining, tourism and the financial sector.
The IMF, however, projected Zimbabwe’s economy to grow by less than 1,4 percent.
In a random poll of Zimbabweans this week, it was clear many were not buoyant.
“The situation is very bad, there is no work,” said one of Harare’s unemployed university graduates , Joshua Moyo, who turned 34 this year.
He added: “The only future I see is one with a salary of about US$500 a month. That is if I can find a job.”
Industry is in worse shape; companies have been closing or laying off workers at a faster rate than expected.
This has resulted in 94,5 percent of Zimbabweans currently without formal jobs. But this has equally affected government, whose revenue base has dwindled, eroded largely by a shrinking economy battered by the company closures and increased job losses.
The majority of companies still in operation are on the verge of collapse.
A significant number of companies have closed completely, rendering thousands of workers jobless and adversely affecting revenue collection.
Industrialist, Kumbirai Katsande, a former president of the Confederation of Zimbabwe Industries, appeared to lay the blame squarely on government.
“As a country, we need speed. We should see the proverbial curved walls,” said Katsande.
“When drought comes, it should find us ready. We should see it coming and we deal with the mitigating aspects.”
Katsande said Zimbabwe did not have a fighting point around which to rally its people.
“The question I have is: What is our battle cry as a country? Do we have a battle cry at all? I know you will say the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZimAsset), but that is not a battle cry,” he told the IMF round table.
“We seem to get on with this little palliative — poverty alleviation and so forth. True, we need that but this should not become our narrative. We need to be ambitious.
“You find that some people are going to the moon and these people have read the same books we have read. The books we have read have no pages which were taken out so that we don’t go to the moon. And for us, we can’t even cross the river…. We need to be ambitious as a people,” Katsande challenged.
Chinamasa admitted that there was need to grow the economy.
“The Zimbabwe that I want is a country that is growing six, seven, eight, nine or 10 percent sustainably for the next 10 to 15 years,” said Chinamasa, adding: “Unless we have that, we will remain in the trenches.”
“Growing the economy is important because the IMF is (saying) we cannot give you money unless you change the way you are doing things because what you were doing crippled your capacity to pay. They say what new things can you to tell us to show that you now have capacity to pay. That is the nature of our conversation with the IMF,” he said.
Chinamasa said meeting SMP targets only paved way for Zimbabwe to negotiate with the IMF.
“We now have a good track record after meeting our targets but we are not yet there. We are only there to be able to discuss a new financial programme only. If they don’t see any capacity, they will not give us new money. That is the conversation that is taking place between us and the IMF.”
Zimbabwe last year tabled proposals to clear US$1,8 billion in arrears to the World Bank (WB), IMF and the African Development Bank (AfDB), to pave way for new funding.
This is part of government’s effort to revitalise the economy.
The country has been unable to access offshore funding due to international arrears to the multilateral financial institutions and other lenders.
The arrears clearance plan, which was presented to international creditors during IMF and WB annual meetings in October last year by government in Lima, Peru, entails Zimbabwe clearing arrears to the IMF amounting to US$110 million, WB (US$1,15 billion) and AfDB (US$601 million) by the end of June this year.
Zimbabwe is expected to clear the arrears to the three international financial institutions through use of domestic resources, a bridge loan and the use of a medium to long-term facility from a friendly country.
The clearance of arrears is expected to send positive signals, reduce perceived country risk and unlock affordable credit lines.
The strategy also involves development of a new comprehensive country financing programme supported by the AfDB, the IMF and the WB to attract long-term financing to promote growth and debt sustainability.
There are critics who argue that government’s arrears clearance plan would use resources that could be committed towards critical social expenditure.
Chinamasa said: “But we need to make friends. We don’t need enemies, especially if you get the enemies that lend you money.
“So we need to be very clear that unless we reach accommodation with them, we don’t get lines of credit into the commercial sector, which is important.”
“I want to solicit support from Zimbabweans for our reform agenda. I want to acknowledge the road that we have travelled. The journey has been very difficult and is going to remain difficult. This is why it is important that we have moral, political and economic support so that we reach the goal to recover the economic fortunes for our country.”
Recent indications are that the economic slowdown experienced in the past three years could eventually plunge the country into contraction, worsening the country’s economic woes.
The current state of the economy has impacted on both employment and industrial output.
Chinamasa said he needed “consented effort, not from colleagues only but also from all stakeholders in the economy” for meaningful economic reforms.
“Only when I have that collective support, I will be able to move in the direction that we all want. But this reform does not happen in one big battle.
“So if we are to have a battle cry, it should be to grow the economy by six, seven, eight, 10 percent sustainably in the next 15 years.”
Chinamasa said he was anxious to resolve the country’s debt crisis.
“To be honest, I don’t enjoy the prospect of being a debtor Minister of Finance. Wherever I go, I am asked ‘when are you going to pay and how are you going to pay?’”.
He said these were questions asked by both locals and foreigners.
“I tell you I have now become a very humble person because when you are a debtor, you must be very humble. If you are cheeky, then you will not get a favourable response. But I always explain to creditors that you need to assist us build a track record of sound macro-economic management so that we are in a position to pay you later. What we are doing with the IMF is exactly that.
Chinamasa added: “Despite all the challenges, I am very buoyant because I know that the measures that we are taking, we will exploit and realise the full potential of this country.
“We just need an uninterrupted process of reform, backed by all of us. And I know that we can do it. Not for the IMF, not for the creditors, but for ourselves.”
This, surely, is an urgent matter.
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