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Domenico Fanizza

Business Reporter
Government should heed policy reform recommendations by the International Monetary Fund to ensure economic stability, growth and increased revenue to support its huge expenditure bill.
A research report by Zimnat Asset Management noted that the country needed to work on balancing the fiscal budget.

Zimnat said reforms in this area would send out a strong signal about Government’s commitment to budgetary discipline.

The Government, the report says, can take two routes in addressing its primary budget, either through cutting its recurrent expenditure amount or through expanding its revenue base.

As at June 30 2014, employment costs accounted for 76 percent of Government’s expenditure, leaving little fiscal space for capital projects and other obligations.

However, cutting Government’s wage bill at this juncture would be challenging.

In the run up to the 2013 harmonised elections, ZANU-PF promised to create over two million jobs after being elected into office.

Therefore, Zimnat contends that from a political stand point, it would not make sense for the Government to retrench in order to cut employment costs.

“This, therefore, means that Government has only one option to improve its primary fiscal position that is through growing its revenue base,” said Zimnat.

The biggest hurdle that the Government was facing in this regard was the Indigenisation and Empowerment Act, which, according to Zimnat, was deterring foreign direct investment.

“Implementation across a number of empowerment deals has been inconsistent and lack of clarity on this policy has scared away potential investors,” it said.

In the absence of significant domestic savings, Zimbabwe has to rely on foreign capital to fund productive sectors of the economy, which enhance the Government’s revenue, job creation and overall economic growth.

IMF head of mission to Zimbabwe Mr Domenico Fanizza, who was in the country last month, expressed satisfaction with the Government’s efforts in rebalancing policies towards a stable macro-economic environment, conducive to private sector growth.

However, Mr Fanizza acknowledged that economic conditions remained difficult because of inadequate liquidity, shrinking Government revenues and volatility in the currency of Zimbabwe’s main trading partner, South Africa.

Furthermore, he said the country had no international reserves, a large current account deficit and significant external debt arrears.

Against this background, the Government and the IMF have agreed on major areas of policy reforms that would be monitored under a proposed 15 month successor SMP, scheduled to run until December 2015. The successor SMP will also monitor progress towards restoring confidence and stability in Zimbabwe’s financial sector.

The biggest impediment to stabilising the country’s financial sector remains the under-capitalisation of the Reserve Bank of Zimbabwe and lack of lender of last resort.

The IMF also advised that it was important to define a strategy for clearing arrears with multilateral financial institutions.

“Clearing arrears with multilateral institutions would normalise relations between these institutions and Zimbabwe and also unlock new lines of credit for the country,” economist Mr Douglas Mahaso said.

The country’s external debts (public and publicly guaranteed debt) as at June 2014 were at US$6, 9 billion, which represents 51 percent of Gross Domestic Product.

The Government has already begun making regular monthly token payments towards servicing of arrears to the IMF and quarterly payments to the World Bank and African Development Bank.

Going forward, the Government, under the strategies of the Zimbabwe Accelerated Arrears Clearance Debt and Development Strategy, will also step up efforts to re-engage other non-Paris club creditors for debt relief and rescheduling.