Zimbabwe eyes IMF bailout at crunch meeting

Zimbabwe Finance Minister Prof Mthuli Ncube and IMF Managing Director Kristalina Georgieva at the World Economic Forum in Davos, January 2020. (Image: twitter)

FINANCE minister Mthuli Ncube yesterday met International Monetary Fund (IMF) managing director Kristalina Georgieva to discuss, among other pressing issues, the country’s crisis-hit economy, on the sidelines of the World Economic Forum in Davos, Switzerland, ahead of a crucial meeting on Zimbabwe next month.

At the meeting scheduled for Washington DC, the Bretton Woods institution will explore ways of rescuing the imploding economy.The deliberations will be pivotal in deciding the fate of the IMF Staff-Monitored Programme (SMP), following the government’s failure to meet the economic agreement’s set targets.

Ncube’s meeting with Georgieva comes at a time negotiations over the re-calibration of the SMP remain in limbo after government and the IMF team failed to reach consensus. The SMP is an informal arrangement between the government and the IMF to monitor the implementation of key economic programmes in the country.

It is designed to support Zimbabwe’s reform agenda. The SMP covers the period May 15, 2019 to March 15, 2020.“We discussed the Zimbabwe economy and reforms, and SMP, the need for more social protection of the vulnerable due to drought and arrears debt clearance roadmap. Good meeting,” Ncube wrote on microblogging site Twitter after the meeting with Georgieva yesterday.

However, the meeting, sources said, will not influence the decision to be made on the SMP as Georgieva will only be guided by the recommendations made by the IMF team which visited Zimbabwe in December last year.

The delegation was led by IMF adviser Gene Leon.Sources said the IMF board meeting will be held in Washington DC in late February, where the Article IV consultations with Zimbabwe will be discussed.

During consultations, an IMF team of economists visits a country to assess economic and financial developments with government and central bank officials. A summary of the IMF board’s views is subsequently transmitted to the country’s government.

“The IMF will hold a board meeting on Article IV consultation with Zimbabwe in late February,” a source revealed. “The meeting will discuss the problems Zimbabwe is facing right now and the way forward as well as the SMP. The meeting will be based on the mission’s visit in December last year and there will be a report on the outcome of the meeting which should be available in early March. Shortly after that, there should be another mission visit to Zimbabwe where the issue of the SMP will be discussed. ”

The IMF has already raised a red flag over the country’s failure to meet targets on inflation and government’s controversial spending, especially on deals with Sakunda Holdings, a company linked to President Emmerson Mnangagwa’s backer, Kuda Tagwirei.

Government has admitted that it failed to meet the targets set out in the initial SMP, but feels the process can still continue.In a prior meeting, the IMF painted a grim picture of the economic situation and was critical of the government’s disastrous fiscal consolidation measures, which have resulted in a volatile exchange rate and hyperinflation.

The IMF said urgent measures need to be taken to address the crisis.“Policy actions are urgently needed to tackle the root causes of economic instability and enable private sector-led growth. The key challenge is to contain fiscal spending consistent with non-inflationary financing and tighten monetary policy to stabilise the exchange rate and start rebuilding confidence in the national currency,” the IMF said in a statement after its visit in September last year.

In his 2020 National Budget, Finance minister Ncube said he had missed fiscal reform targets under the Transitional Stabilisation Programme (TSP) and the SMP.
Presenting the opposition Movement for Democratic Change’s position to the IMF late last year, former Finance minister and the party’s vice-president Tendai Biti said the country is not in a position to implement an SMP.

“The MDC notes that the IMF in May of 2019 agreed a Staff-Monitored Programme with the government of Zimbabwe,” Biti said.“We maintain that the fundamental challenge with the IMF is that it fails to locate the crisis in the deeper structural political issues that are arresting Zimbabwe, particularly the crisis of legitimacy arising out of the coup of November 2017 and the contested election of July 2018. The solutions proposed in Zimbabwe by the IMF in the SMP are economocentrist , the answer to the Zimbabwe crisis does not lie in economics, it lies in the urgent resolution of deep structural political crisis arresting our country.”

Biti argued that the IMF “is turning a blind eye” to the country’s budget deficit “Our strong position is that Zimbabwe was not ready for an SMP. The SMP was not supposed to be negotiated and concluded in the first place. Since 2014, Zimbabwe has been unable to meet targets that it set out for itself, these targets include macro-economic aggregates such as GDP growth rate, expenditure, revenue targets and inflation,” Biti pointed out.

“Consistently Zimbabwe has maintained a budget deficit monetised through legal and extra-legal means including issuance of Treasury Bills and running an unlawful overdraft facility with the central bank. The IMF has turned a blind eye to this budget deficit.”

Biti said granting an SMP to the country was “an attempt to marinate an incorrigible regime that is incapable of meeting its own targets”.

“Zimbabwe could not be ready for an SMP, its public finance management system is shambolic, and the Ministry of Finance has violated the Constitution, Public Finance Management Act and the Public Debt Management Act,” Biti said in the opposition party’s position paper to the IMF.

“In our view what is needed is fiscal consolidation which cannot be addressed without dealing with the wage bill which is over 90% of the total budget. Therefore, the SMP will have to address the wage bill, elite travel, parastatals and issues of transparency around commodities especially gold, diamonds, platinum and chrome,” he said. – The Zimbabwe Independent