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Zimbabwe – Playing hardball with the IMF

Despite delaying salary payments for public sector workers this month due to financial constraints, the Zimbabwean government has basically rejected an International Monetary Fund (IMF) condition of reducing the state payroll in order to qualify for external debt relief. The Ministry of Finance shifted payday for 235,000 state workers to the 27th of the month – i.e. two days late – in order to collect the money needed for salaries. (Fiscal revenues were 4% under target during January.) The Fund has called on Harare to reduce the public sector wage bill from three-quarters of the fiscal budget as part of conditions set out in its Staff-Monitored Programme (SMP) – a scheme aimed at starting Zimbabwe on a path towards external debt relief. We have several times voiced pessimism over the country’s ability to reach SMP targets.

The government is hesitant to make an overnight cut in the state payroll, as this would require retrenchments. A team from the IMF visited Zimbabwe this month to review progress under the SMP, conduct its 2014 Article IV consultation, and to work on re-engagement plans. They also revealed that the multilateral organisation plans to re-open its office in Harare. The team will return during June when the extended SMP is set to expire. On March 26, Minister of Finance Patrick Chinamasa re-emphasised his commitment to continue engagements with the Fund and to address issues it raised, but with a measured approach and no drastic changes. This is part of ZANU-PF’s standpoint that Zimbabwe will engage with the multilateral organisation as a member and not a debtor – current debt arrears are blamed on sanctions. Token repayments are however being made.

WHY DO WE CARE? The IMF requires Zimbabwe to make some short-term sacrifices in order to secure long-term benefits: reducing state employee numbers now will help start the country on the path to securing much-needed external debt relief. This is part of the Fund’s view that resurrecting the Zimbabwean economy will take several decades – a time horizon that appears to be too great for local politicians. In the meantime, media reports point to more company closures, increased migration to South Africa, waning local manufacturing capacity, and continued constraints on currency liquidity. It is therefore not surprising to see that the Zimbabwe Stock Exchange (ZSE) Industrial Index has declined by 13% since the start of the year to readings seen prior to the March 2013 referendum – the outlook for the landlocked economy is getting bleaker by the week. Our previous review of Zimbabwe suggested real economic growth of 4.1% this year, but this figure is looking optimistic at present.   

nkc zim hardball

 

Analyst: Christie Viljoen

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