eBusiness Weekly
Business Reporter
Government has responded to the IMF’s Article IV Consultations Staff Report and explained why it ended up with what the global lender described as uneven implementation of reforms and policy missteps.
At the end of February 2020, the IMF released an executive summary of the Article IV Consultations Staff Report and said the reforms it had agreed on with the Zimbabwean authorities were affected by mixed policy implementation.
As a result, the global lender went on to revise downwards Zimbabwe’s 2020 economic growth forecast, cutting its projection from 2,7 percent to 0,8 percent on account of anticipated poor agricultural performance this season and “policy missteps”.
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.
The global lender, which is also running a Staff Monitored Programme with Zimbabwe, said the country scores well below the regional average on governance, transparency and corruption indicators.
In response, which also forms part of the Article IV Consultations Staff Report (The Report), Government agreed on the need to deepen structural and institutional reforms.
Consistent with the TSP, Government said its focus is on reforms that would support private sector activity, including by reallocating spending towards infrastructure rehabilitation; accelerating public enterprise reforms to improve their service delivery; continuing ease of doing business reforms especially to reduce constraints for starting a business, acquiring construction permits, and registering property; and implementing the ambitious governance reform programme to combat corruption.
“The authorities broadly share staff’s assessment of risks on the macroeconomic outlook. However, they believe that risks on 2020 real GDP growth are on the upside, reflecting a more optimistic view of prospects in agriculture, tourism, mining, and a boost in investment from a prompt rebound in confidence.
“While acknowledging the social impacts from the sharp fiscal adjustment, the authorities believe that this is necessary to stabilise the economy and expressed a strong commitment to continue stabilisation policies and structural reforms to pave the way for strong and inclusive growth over the medium term,” reads part of the Report.
According to The Report, Government also expressed commitment for continued fiscal prudence to ensure a stable macro-economic environment and highlighted that its “twin fiscal anchors are a public debt level under 60 percent of GDP and an overall fiscal deficit under 3 percent of GDP, consistent with SADC commitments.
Based on revenue collection in recent months, the authorities believe that the annual revenue target of $58,6 billion approved by Parliament can be achieved.
The IMF, however, believe Zimbabwe will come short of its revenue targets.
Before COVID-19, the IMF was forecasting a fiscal financing gap of about $14, 9 billion in 2020.
It said Zimbabwe will likely spend $6 billion more than it budgeted as it continues with gold and maize subsidies which according to the IMF were not budgeted for.
As a result, Government had already expressed “commitment to delay execution of some allocations in the 2020 budget until there is greater clarity on revenue outcomes and the availability of domestic financing, while protecting social spending.”
“The authorities noted that any non-concessional borrowing will be limited to critical food imports and essential infrastructure projects,” reads part of the Report.
On the losses related to the currency reform, the authorities agree on the objective to limit the overall amount assumed by the Government, but emphasized that failing to honour obligations of foreign investors and creditors would harm Zimbabwe’s reputation and undermine access to critical goods and services.
However if any debt is to be taken over, Government reportedly confirmed that “the debt assumption for such losses will be approved by Parliament through a Debt Assumption Act.”
The Report also said the authorities had noted their commitment to addressing gaps in the financial sector supervision and financial stability frameworks consistent with the findings and recommendations of the Financial Sector Stability Review conducted by the Fund in November 2018.
“To that end, they plan to upgrade the legal framework to align banking supervision and the financial safety net with international best practice, reorganize the offsite and onsite supervisory functions, and strengthen the risk assessment framework with TA from the Fund.
“Currently they are drafting amendments to the banking law and deposit protection corporation Act—including the triggers for bank resolution, improvements to the bank liquidation regime, clarifying the hierarchy of claims, and elaborating on the role of the courts in bank resolution—to bring legislation in line with international best practice.”
According to the report, the RBZ and the newly established Monetary Policy Committee expressed determination to establish monthly reserve money targets consistent with low inflation and to introduce instruments and processes for achieving these targets at market-determined rates.
The RBZ plans to target a moderate (10-15 percent) increase in reserve money in 2020 and make any lending to its subsidiaries consistent with the overall reserve money targets.
