Zimbabwe and the International Monetary Fund (IMF) have agreed to have the later monitor it’s political and economic reforms. The program dubbed IMF staff-monitored programme is meant to convince donors and creditors to forgive Zimbabwe’s external debt.
Key highlights of this program so far
- According to the IMF due to the austerity measures adopted by Zimbabwe, our economy will shrink by 2.1% in 2019
- The economy will rebound back and grow by 3.3% in 2020
- Zimbabwe owes about $8 billion dollars to external lenders
- This includes about $2 billion that is owed to the World Bank, the African Development Bank and the European Investment Bank
- Confusingly the Herald claims Zimbabwe has not been able to borrow from international institutions since defaulting on its debt in 1999. The same publication has claimed that Zimbabwe has managed to borrow on several occasions from the African Export-Import Bank. Unless they are not counting it as an international bank. Then Reserve Bank Governor made claimed payments to IMF on several occasions too
- The Zimbabwean government which has destroyed the local economy due to fiscal indiscipline and reckless borrowing has pledged to only borrow $400 million instead of $3 billion they borrowed last year from the RBZ (central bank)
- Treasury has also agreed to cut the government’s salary bill to 67% of the budget instead of last year’s 79%. How they are going to achieve such a feat remains to be seen. With inflation skyrocketing government is going to face unprecedented pressure to review wages upwards
- The budget deficit will be reduced to 4% of GDP. Right now it’s up there
- The government will remove subsidies on grain next year. Last month they “removed” subsidies on fuel and ordered fuel companies to buy foreign currency on the Intermarket rate. This rate is anything but open and is propped up by the RBZ which essentially means the government is still holding up fuel companies. Given the energy crisis prevailing in Zimbabwe right now, it would be unwise for the government to take off their eyes on this sector.
- The government blames this year’s expected 2.1% contraction of the economy on drought and cyclone Idai. That is partly correct. You can add incompetence, corruption and lack of confidence to the list of things to blame.
- Annual inflation rate will average 80,86 per cent this year but the figure would fall to 14,1 per cent next year. That seems rather absurd considering that month on month inflation is probably well over 200% already.
The IMF is aware
The IMF is aware of the fraught nature of austerity. We have had similar measures under the so-called Economic Structural Adjustment Program (ESAP) which was implemented by the IMF, World Bank and Zimbabwean government in March 1991. It created a lot of hardships and none of the supposed benefits materialised.
In a way, it is the reason why we are in this current economic quagmire. Faced with fierce resistance and the possibility of losing power: the ruling government adopted a populist (socialist) tack. This led to zealous public spending Zimbabwe defaulting in 1999.
“Higher than projected inflation or a continued exchange rate depreciation could increase spending pressures, while failure to enforce (performance finance management) could lead to unbudgeted expenditure,” the IMF report said.
It seems the IMF is keenly aware of the difficulties of implementing austerity. Even in countries like France and Greece austerity has met with fierce resistance.