An International Monetary Fund (IMF) team is expected to visit Zimbabwe this month. This is in line with an approved six-month extension of Zimbabwe’s Staff Monitored Programme (SMP) which had been requested by Zimbabwe. The extension was meant to allow time for Zimbabwe to strengthen its policies and deliver on outstanding commitments under the programme.
The SMP had been approved by IMF management in June 2013 for the period April-December 2013. Upon its expiry, which also came after an inclusive government had ended and ZANU-PF had formed its own government after its victory at July 31, 2013 elections, Zimbabwe’s Finance Minister Patrick Chinamasa had sought extension of the SMP.
The SMP focuses on putting public finances on a sustainable course, while protecting infrastructure investment and priority social spending, strengthening public financial management, increasing diamond revenue transparency, reducing financial sector vulnerabilities, and restructuring the central bank. In particular, fiscal consolidation to move the primary budget balance from a deficit in 2012 to a small surplus in 2013, helping start a gradual rebuilding of fiscal buffers and international reserves was at the centre of the SMP.
Not much headway was made last year and Zimbabwe sought to get this programme working this year. There is still not much progress in ensuring the country meets outstanding commitments. Obviously, cognisant of the impending visit by the IMF team, Chinamasa last week announced that they were demanding greater accountability in the mining and selling of Marange diamonds.
Fiscal finances are expected to come under pressure from a recent hike in civil servants’ salaries, which the IMF had advised against. Consequently, the capital budget will suffer as expenditure will be diverted towards meeting the unbudgeted for salary increases, implying that the goal to protect infrastructure investment and priority social spending would be sacrificed.
Whereas the programme had last year faced the risk of elections which were largely expected to be bloody (they turned out to be peaceful), the new risk to the programme remains the decline in commodity export prices and a worsening liquidity crunch that would exacerbate fiscal stress. Zimbabwe’s external debt remains high and largely in arrears, cutting off the country from access to most external financing sources. In particular, Zimbabwe remains unable to access IMF resources because of its continued arrears to the Bretton Woods institutions.
The IMF has said a strong track record of maintaining macroeconomic stability and implementing reforms, together with a comprehensive arrears clearance strategy supported by development partners, would be essential for resolving Zimbabwe’s large debt overhang. The review will inform the IMF’s perception, and consequently that of international lenders, of the country’s economic trajectory.
We should therefore not fail the test.