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The International Monetary Fund (IMF) has expressed reservations on Government’s plans to issue $600 million worth of Treasury Bills to clear debts owed to Zesa Holdings by local authorities and state authorities, saying these entities should improve their operations and management to avoid debt pile up. In emailed responses to FinX, an online-based service, the IMF said: “The weak financial performance of SOEs (State-owned enterprises) in Zimbabwe constitutes a drain on the Government budget and a significant drag on growth.

“Intra-public sector arrears complicate efforts to improve governance and financial discipline. Making progress requires ending the continuous recapitalisations of SOEs by the Government.”

Added the fund, through a spokesperson; “The need for the Government to recapitalise SOEs or clear arrears becomes particularly problematic when the fiscal deficit is significant and domestic debt is on a sharp upward trend.

“So while dealing with existing arrears is important, it should take place in the context of broader reforms, such as developing an electricity tariff structure that allows ZESA to return to cost-recovery, and improving the governance and oversight of the SOEs. SOEs should enhance their management and operations and prevent the build-up of future liabilities.”

The call for a cost-recovery tariff structure, which implies a power tariff hike, has also been made by Energy and Power Development Minister Samuel Undenge.

Providing oral evidence to the Mines Parliamentary Portfolio Committee yesterday, Undenge said: “The revenue which Zesa is receiving is below the cost of its operations and there is that constraint. I think you remember at one time I called for a tariff increase and at that time it was not taken.

“When you compare to other countries like South Africa, the tariffs are increased on an annual basis but we don’t have that in our pricing system so we need to address that,” he said.

Minister Undenge said Zesa has not known a tariff increase for the past six years. However, industry has been arguing that Zesa should actually lower down its tariffs by fostering competitive measures in the operations. Industrialists have been arguing that a lower power tariff will enable them to be competitive.

Giving the example of chrome miners, who are getting a tariff rate of 6 cents per kWh, industrialists have opined how the chrome sector is now growing and contributing meaningfully to mineral revenue.

There is also an argument that Zesa has to focus on enhancing more efficiency as opposed to reliance on power tariff increase since the current tariff structure is already the second highest in the region.

In terms of key imperatives for Zimbabwe’s medium to long term growth, the IMF said, “Restoring growth in the medium term requires policies that tackle the structural challenges hindering the economy so as to enable it to achieve its potential. On the fiscal side, it requires the Government to rein in expenditures and restore fiscal discipline.”

The fund also said budgetary operations are crowding out the private sector, and the skewed expenditure profile towards wages is inhibiting investments in other priority sectors, particularly infrastructure.

“On the financial side, it requires the restoration of confidence to attract dollars in the economy and enable banks to intermediate effectively by channelling deposits to productive credit rather than financing fiscal operations.” — Wires.