Much work ahead for Zim: IMF

28 Sep, 2014 - 06:09 0 Views
Much work ahead for Zim: IMF

The Sunday Mail

International Monetary Fund assistant director (African department) Mr Domenico Fanezzi is heading the multi-lateral financial institution’s mission to Zimbabwe to assess progress on a staff programme it is monitoring. Our Senior Reporter Kuda Bwititi (KB) spoke to Mr Fanezzi (DF) about Zimbabwe’s external debt relief prospects, the staff programme, strategies to achieve economic turnaround and related matters. Below are excerpts:

KB: What is the purpose of your visit?

DF: As the person responsible for Zimbabwe’s mission in Washington, I oversee IMF policies that Zimbabwe is implementing. So, there are two main tasks for the mission to Zimbabwe.

The first task is to conduct the second review of the (IMF staff monitored) programme. This programme started about a year ago. It was the first step to establishing new relations with Zimbabwe.

The second task is to discuss a new programme that could bring the collaboration a step up, and prepare and help authorities in their efforts to eventually obtain debt relief and normalise relations with creditors. Obviously, the second task is a bit more ambitious.

KB: Why do you say the second task is ambitious?

DF: Well, it involves a lot of work. The main objective is improving the extent of Zimbabwe’s current account, accumulating more into your reserves so that you can also be able to pay a bit more to creditors; so that Zimbabwe can show that it is making an effort.

You need, as a country, to show effort that you can be able to move forward. After this, we will then identify one or two structural areas in which Zimbabwe will make efforts of reform that could benefit its capacity.

KB: What reforms need to be implemented?

DF: We are in the process of discussing these, but some of them are restoring confidence in the financial sector and increasing revenue-generation capacity. You also have structural areas such as the indigenisation policy and things like that; addressing issues of the wage bill.

KB: What do you think of Zimbabwe’s indigenisation laws?

DF: Well, that is one issue that we are in the process of discussing. We will have a Press conference at the end of the mission, where we can speak specifically about this.

But again, we stress strongly that the programme we are going to implement, not indigenisation only but everything . . . they are the authorities’ programmes. They are programmes for Zimbabwe and policies for the Zimbabwean Government, which has the final say in everything.

KB: From an IMF perspective, what is required to address Zimbabwe’s challenges?

DF: The major challenge is that there is need for serious efforts to inject funds into the economy. As a preliminary stage, the goal is that Zimbabwe eventually gets access to finances.

So, all those issues will be addressed by policies in that context.

But what I can say about your economic challenges is that the rate of growth is worrying. It is important to increase the rate of growth of the economy to generate employment and improve the conditions of living of the population. The rate of growth in the country is declining and Zimbabwe is not benefiting from the growth of other African countries.

Other key areas include creating an environment for FDI and increasing capacity to exploit your natural resources. Your resources are enough to benefit all your people.

There is need for higher investment in infrastructure, which is not taking place because the wage bill absorbs too much of the available resources. These are major challenges.

Frankly, they are not easy to solve. To solve that you need loans; the country needs support from the international financial community.

Zimbabwe is growing at about 3 percent now, but that is insufficient.

KB: You spoke of Government’s high wage bill. What is required there?

DF: There is no one way to that. However, a starting point is not raising wages above inflation. Another way is to rationalise employment. It is not an easy process. Other measures need to be home-grown. I know it is not easy, but the work has to be done.

KB: Zim-Asset is the country’s guiding economic blueprint up to 2018. It is a home-grown strategy to leverage economic development . . .

DF: We share the ideas of Zim-Asset in that it will add to the growth of the economy by 6 to 7 percent. But this requires support. Its objectives cannot be achieved unless the country regains access to financial support. That is the starting point.

KB: What is the timeframe within which Zimbabwe can access such funding?

DF: As I said earlier, it is going to be a difficult process. It is not easy to put a timeframe. It all depends on the efforts and policies of Government. It requires support from individual developing partners, to the clearance of arrears and then starting the process of debt rescheduling under the Paris Club.

Under the new Staff Monitoring Programme (SMP), we are thinking and hoping that the process will last until 2015. We are hoping that this year is an important year. It is time to put the right things (in place) and then see where we are afterwards.

KB: So, is it possible that at the end of 2015, Zimbabwe will be able to get bilateral support from international lenders?

DF: Hopefully, yes. It is possible, but things need to be aligned. We have to work. It is like we are in uncharted waters, yet it is also an opportunity that your country needs to seize and say, “We can do it.”

You need to address the issues I have spoken about: like keeping the fiscal position under control; redeeming fiscal discipline; reducing poverty; reducing the burden of the wage bill.

Twenty percent of GDP is too much (to put) into paying wages. That is the major problem for Zimbabwe. The authorities have to show that they are committed to solving this issue.

I am not saying that the workers are paid too much, but the overall size of the wage bill is practically unaffordable. The truth is your country cannot pay the high wage bill it is paying now.

KB: In 2009, Zimbabwe accessed IMF Special Drawing Rights. Is it possible to access these again?

DF: That, in theory, is possible, but, in practice, it is not. Why? Because with the SDRs, you will pay interest rates at commercial rates and at the same time you have arrears. This is tantamount to a credit on another credit. It is clearly negative.

I would advise Zimbabwe against doing that because it is against their interest since their final objective is to get multilateral and bilateral partners. These offer much more than SDR amounts.

KB: You have said Zimbabwe “is not poor enough” to qualify for debt relief. What determines whether or not a country “is poor enough”?

DF: Zimbabwe does not qualify for HIPC (Highly Indebted Poor Countries initiative). In order to qualify for this, the ratio of debt to exports should be 150 percent. Based on your figures, that is not the case.

And I would like to repeat that Zimbabwe is not poor; it is very rich. The level of debt to exports is not big. There are what we call “traditional debt relief measures” and this is what we are trying to do — lay down the groundwork to ask for debt reschedule. This is what we are doing.

KB: But Nigeria, for example, got debt relief, yet it had an US$18 billion debt and the country is fairly rich in terms of resources.

DF: In the case of Nigeria, the debt was to the Paris Club. Zimbabwe needs to find a solution to its arrears with multilateral institutions such as the World Bank, the IMF and the African Development Bank.

It should also think outside the box, identify and engage donors willing to provide support. Start discussions in that vein, eventually clearing these arrears. Then have a financial programme with the fund, which the fund can provide financial support for. When that programme is in place, you can seek debt rescheduling from bilateral creditors.

KB: What is your position on economic sanctions on Zimbabwe by the US and EU?

DF: I understand the largest sanctions will be lifted very soon. That is a positive for your country, that you should look forward to. It is a welcome move for you.

What I know is that your Government will now get direct aid from the EU. But your Government knows more about how you will benefit and I am sure they are preparing for that.

KB: The US makes it illegal for its officials at the IMF to support Zimbabwe’s bid for funding. What is your view on this?

DF: What I know is that these sanctions are a fact. I cannot speak about other people; what they think. What I know is that the IMF discusses its policies. I can only speak about the IMF policy and what it says on Zimbabwe and the policy is what we are implementing now.

KB: What major asset can Zimbabwe use to achieve economic turnaround?

DF: Zimbabwe has a large human capital base. If this is matched by its natural resource, it makes for a fantastic combination that will ensure your prosperity.

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