The head of an International Monetary Fund mission to Zimbabwe Vitaly Kramenko said the Reserve Bank of Zimbabwe remained problematic but the continuation of Gideon Gono as central bank governor and board chair was not critically important as long as the rest of the board was made up of strong, independent members.
Kramenko said the IMF team had met Gono for six hours and he had assured them that he was working amicably with the Ministry of Finance and that the RBZ supported reform.
He, however, said the operations of the central bank were opaque. It had no operating revenue and was apparently selling assets to cover current costs. There were no financial statements and no outside body provided oversight.
Full cable:
Viewing cable 09HARARE545, IMF BRIEFS ON GOZ PROGRESS, CONTINUING BUDGET GAP
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Reference ID |
Created |
Released |
Classification |
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VZCZCXRO4762
PP RUEHBZ RUEHDU RUEHMR RUEHRN
DE RUEHSB #0545/01 1830941
ZNY CCCCC ZZH
P 020941Z JUL 09
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 4678
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 2336
RUEHAR/AMEMBASSY ACCRA 2928
RUEHDS/AMEMBASSY ADDIS ABABA 3046
RUEHBY/AMEMBASSY CANBERRA 2309
RUEHDK/AMEMBASSY DAKAR 2676
RUEHKM/AMEMBASSY KAMPALA 3094
RUEHNR/AMEMBASSY NAIROBI 5537
RUEAIIA/CIA WASHDC
RUEHGV/USMISSION GENEVA 2224
RHEHAAA/NSC WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RUZEHAA/CDR USEUCOM INTEL VAIHINGEN GE
C O N F I D E N T I A L SECTION 01 OF 03 HARARE 000545
SIPDIS
AF/S FOR B. WALCH
AF/EPS FOR ANN BREITER
NSC FOR SENIOR AFRICA DIRECTOR
STATE PASS TO USAID FOR L.DOBBINS AND J. HARMON
TREASURY FOR D. PETERS
COMMERCE FOR ROBERT TELCHIN
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS
E.O. 12958: DECL: 07/01/2019
SUBJECT: IMF BRIEFS ON GOZ PROGRESS, CONTINUING BUDGET GAP
REF: HARARE 232
Classified By: Ambassador James D. McGee for reason 1.4 (d)
¶1. (C) SUMMARY: During a June 29 briefing for OECD
Ambassadors, IMF Mission Chief Vitaly Kramenko said his team
found the GOZ budget evolving largely as expected, with
revenues increasing steadily, but still inadequate to fully
fund expenditures. He said the IMF is urging the GOZ to
exercise caution on increasing wages. New legislation to
improve Reserve Bank governance is before cabinet for action.
The RBZ continues to operate without oversight, but with no
revenue has to finance operations by selling assets. Finance
Minister Biti explored with the IMF the possibility of a
unilateral withdrawal of US$100 million of Zimbabwe’s IMF
quota to finance public investment. The IMF and the GOZ
continue looking for ways that donor or IFI cash could close
Zimbabwe’s budget gap. END SUMMARY.
¶2. (U) On June 29 IMF Mission Chief Vitaly Kramenko briefed
OECD Ambassadors on his team’s one week follow-up to March
2009 Article IV consultations. Since March, IMF missions
have also provided technical assistance on financial sector
issues and revenue policy; a revenue administration team is
due in July. Kramenko noted that this engagement was
expensive and represented an unusual degree of commitment
from the IMF.
——————————–
Revenues up but still inadequate
——————————–
¶3. (C) Kramenko said that, as expected, revenues have
increased steadily since dollarization, from US$4 million in
January to US$28 million in February, US$44 million in March,
US$53 million in April, US$65 million in May and US$70-80
million anticipated for June. Total revenues for the year
were expected to reach US$850-880 million. Most of this is
consumption based, originating in VAT and customs duties;
corporate and income taxes are growing only slowly, as
production remains low; the mining sector, for example, is
only expected to produce about US$80 million this year. The
IMF has recommended revenue policy reforms that would
generate an additional US$50 million, bringing total tax
receipts to US$930 million. South Africa (US$35 million) and
China (US$5 million) have provided grants that will bring
total revenue to US$970 million. With expenditures currently
pegged at US$1.1 billion, Kramenko expressed the hope that
pledges made to PM Tsvangirai during his recent trip to
western capitals (totaling about US$220 million) would be
sufficiently fungible to close the US$130 million budget gap
¶4. (C) The greatest threat to this relative balance, Kramenko
said, comes from wage demands. Biti told the IMF that the
GOZ wanted to increase the civil service allowance from
QGOZ wanted to increase the civil service allowance from
US$100 per month to US$150 per month, effective July 1. The
IMF recommends that the GOZ phase in increases, paying US$112
in July, US$125 in October, and US$150 in CY 2010. Kramenko
reported the Finance Ministry appears to support this
cautious approach, but a political decision may be made
instead.
—————————
Reserve Bank Reform Lagging
—————————
HARARE 00000545 002 OF 003
¶5. (C) Kramenko said that the Reserve Bank of Zimbabwe (RBZ)
remains problematic. The financial sector team recommended a
new governance structure for the RBZ and a division of the
RBZ’s abysmal balance sheet into a small entity with
performing assets and a new vehicle to hold the RBZ’s
substantial hard currency liabilities, which would require
some sort of financial resolution process. Kramenko said
that draft legislation establishing a new RBZ Board and
monetary policy committee has been submitted to cabinet. The
IMF believes that contrary to advice, the GOZ will move
forward legislation that would make the Governor chair of the
Board, in line with practice in the region. Kramenko
suggested that Gideon Gono’s continuation as Governor and
Board Chair was not critically important as long as the rest
of the Board was made up of strong, independent members. The
IMF team met with Gono for six hours. During the meeting,
Gono assured the IMF that the RBZ and Ministry of Finance
were working together amicably and that the RBZ supported
reform. Kramenko noted that the current operations of the
RBZ are completely opaque. The RBZ has no operating revenue,
and is apparently selling assets to cover current costs.
There are no financial statements and no outside body
provides oversight.
———————————-
Possible Unilateral SDR Withdrawal
———————————-
¶6. (C) Kramenko said that Finance Minister Biti has expressed
an interest in withdrawing some of Zimbabwe’s quota of
Special Drawing Rights (SDRs) to finance public investment
and demonstrate the GOZ’s ability to responsibly manage
funds. Zimbabwe’s quota of 353 million SDRs has a current
value of more than US$540 million. Biti would like to
withdraw US$100 million. Kramenko said that the IMF’s
Articles of Association gave the GOZ the incontestable right
to make such a withdrawal — no Board approval is required
and existing arrears are not an issue. Following such a
withdrawal, Zimbabwe would be required to pay interest at a
market rate on the funds. Kramenko noted that such an action
would go against the intent of the IMF system of quotas. He
asked OECD Ambassadors what their governments would think of
such a withdrawal, implying that it might be acceptable to
the international community. The OECD Ambassador group’s
reaction was surprise and dismay that such a possibility
existed. Kramenko suggested that donors should tell Biti
that negative reactions would far outweigh any positive
demonstration effect if the GOZ undertook such an unusual
step.
¶7. (C) Asked about next steps in Zimbabwe’s engagement with
the IMF, Kramenko said that technical assistance would
Qthe IMF, Kramenko said that technical assistance would
continue. The IMF will not consider adoption of a formal
staff monitored program until and unless donors indicate
commitment to bridge any financing gaps.
¶8. (C) COMMENT: The IMF remains focused on finding ways to
help the Finance Ministry balance the books. With
expenditures at a bare bones level and production slow,
outside funding appears indispensable. We believe that the
GOZ will find that recent donor pledges, like that of the
USG, will produce only modest budgetary relief. We regret
that Biti is considering a withdrawal of part of Zimbabwe’s
SDR allocation. Such a precedent could quickly result in a
HARARE 00000545 003 OF 003
complete exhaustion of Zimbabwe’s quota — and might
encourage other developing countries to take similar
unilateral action. END COMMENT.
MCGEE
(133 VIEWS)
