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Golden Sibanda
The International Monetary Fund (IMF) has revised downwards Zimbabwe’s 2020 economic growth forecast for the second time inside three months, cutting its projection from 2,7 percent to 0,8 percent on account of anticipated poor agricultural performance this season and “policy missteps”.
This contrasts sharply with Finance and Economic Development Minister Mthuli Ncube’s projection that the economy would expand by 3 percent on account of improved agriculture output due to better rains, improved power supply, strong mining performance and a cocktail of incentives to drive production in manufacturing.
The global lender, which estimates the economy to have contracted by as much as 8,3 percent last year, had initially (early last year) projected that the domestic economy would expand by 3,8 percent before issuing revised growth forecast of 2,7 percent late last year.
The IMF said Zimbabwe had taken long to progress on re-engagement, undertake reforms necessary to clear arrears with multilateral lenders to regain access to external lending, which the Bretton Woods institutions says presents challenges in the conduct of monetary policy to contain inflation and stabilise the economy.
At a time, the Southern African country remained trapped in the throes of the asphyxiating debt trap, the IMF cautioned against continued recourse to collateralised external borrowing on commercial terms as this may complicate any future arrears clearance operation.
It said Zimbabwe appeared headed in the right direction to macro-economic stability following reforms by the new dispensation, supported by an IMF Staff Monitored Programme (SMP). However, the lender says, the reforms have been affected by mixed policy implementation.
This has also thrown off rail its staff monitored programme, a Zimbabwe economic reform and stabilisation programme supervised by the IMF, whose success would serve as “clean bill of health” approval for Zimbabwe to regain external credit, of course, after clearing its arrears with the lenders.
In a statement released this week after concluding its latest periodic Article IV Consultations, the executive board of the IMF said Zimbabwe faced a humanitarian and economic crisis while the domestic economy continued to wobble amid slow progress on reforms.
The IMF said Zimbabwe’s economy contracted sharply in 2019, a situation amplified by climate shocks that have crippled agriculture and electricity generation; newly introduced currency that has lost significant value; high inflation; and very low international reserves.
“The climate shocks have magnified the social impacts of the fiscal retrenchment, leaving more than half of the population food insecure. With another poor harvest expected, growth in 2020 is projected at near zero, with food shortages continuing,” the IMF said.
The IMF noted positives on reforms as fiscal consolidation that helped reduce monetary financing of budget deficit, introduction of new domestic currency in February 2019, creation of an interbank forex market, and restructuring of command agriculture financing model to a public-private partnership with commercial banks.
“However, uneven implementation of reforms, notably delays and missteps in forex and monetary reforms, have failed to restore confidence in the new currency,” the IMF said.
To rein in potential implosion of economic and humanitarian crisis, seemingly exacerbated by policy missteps and climate related shocks, the IMF said there was need for difficult policy choices by authorities and support from the international community.
As such, IMF said there is need to adopt coordinated fiscal, monetary and foreign exchange policies, alongside with efforts to address food insecurity and serious governance challenges.
“They emphasized the importance of re-engagement with the international community to support efforts to achieve economic sustainability and address the humanitarian crisis.”
Notwithstanding efforts in 2019 to tighten the fiscal stance and contain quasi-fiscal operations by the central bank, the global lender said it noted that pervasive deficits remain and could be exacerbated by the need to respond to the humanitarian crisis.
Zimbabwe has been implored to cut non-essential spending, including making decisive reforms to agricultural support programmes to allow for social spending needs. The IMF has also underscored the importance of public financial management and enhanced domestic revenue mobilisation efforts as well as eliminating deficit monetisation crucial for fiscal sustainability, which would also serve as a precondition for stabilisation of inflation and preservation of the value of local currency.
Government was also urged to press forward with establishment of a functional foreign exchange market and to remove distortions that could lead to rent-seeking behaviour in the economy.
Given low reserves and high inflation, limited credibility, and a lack of access to traditional forms of external financing, a monetary targeting regime is appropriate to conduct monetary policy, reads the report.
The Fund also stressed the need to address governance and corruption challenges, entrenched vested interests, and enforcement of the rule of law to improve the business climate and support private sector-led inclusive growth.
Addressing these areas is seen as instrumental to advance re-engagement efforts with the international community and mobilisation of the needed support.
The multilateral lender noted with regret that the Staff-Monitored Programme was off-track and underscored the importance of continued engagement between the fund and authorities, including through technical assistance, policy advice and other innovative ways, to help immediately stabilise the economy.
Bongani Ndlovu