Ordinary Zimbabweans not benefitting from economic growth- IMF

Although Zimbabwe’s real gross domestic product grew by an estimated 6 percent in 2009 and 9 percent in 2010, growth benefits have not trickled down to ordinary Zimbabweans because the country’s budget is heavily tilted toward increasing the government wage bill with insufficient resources being allocated to social programmes and high-priority infrastructure, the International Monetary Fund said yesterday.

In a statement following a two-week visit to the country by a team led by Vitaly Kramarenko, the IMF said because of this focus on the public sector poverty remains widespread and the outlook for 2011 remains highly uncertain.

Below is the full statement of the IMF team:

Statement at the Conclusion of the 2011 Article IV Consultation Mission to Zimbabwe

Press Release No. 11/116
April 4, 2011

A mission of the International Monetary Fund (IMF) led by Vitaliy Kramarenko visited Zimbabwe during March 16–30, 2011 to conduct the 2011 Article IV consultation discussions. The mission met with Prime Minister Tsvangirai, Minister of Finance Biti, Minister of Youth, Indigenization and Empowerment Kasukuwere, Minister of Economic Development Mashakada, Minister of Public Service Mukonoweshuro, Reserve Bank of Zimbabwe (RBZ) Governor Gono, and other senior government officials, as well as representatives of the diplomatic and business communities, and civil society organizations and labor unions. The mission would like to thank the Zimbabwe authorities for excellent cooperation and warm hospitality.

At the conclusion of the mission, Mr. Kramarenko, mission chief for Zimbabwe, issued the following statement in Harare:

“Stronger policies, a favorable external environment, and sizeable off-budget donor grants supported a nascent economic recovery and a notable improvement in the humanitarian situation during 2009-10. Real gross domestic product (GDP) grew by an estimated 6 percent in 2009 and 9 percent in 2010. However, economic growth started from a low base and was concentrated on primary commodity sectors in mining and agriculture, both of which are sensitive to exogenous shocks. The budget was heavily tilted toward increasing the government wage bill with insufficient resources being allocated to social programs and high-priority infrastructure. As a result, growth benefits did n ot fully trickle down to many ordinary Zimbabweans outside the public sector and the growing segments of the formal private sector; and poverty remains widespread.

“The macroeconomic outlook for 2011 remains highly uncertain. Against the background of a favorable external environment, short-term growth potential, particularly in mining, is strong. However, a sizeable fiscal financing gap projected for 2011, an inefficient composition of public expenditure, persistent financial sector vulnerabilities, and weaknesses in the business climate, including the recently announced fast track indigenization of the mining sector, weigh heavily on growth and poverty reduction prospects. If these policy challenges are addressed in a timely manner, the strong growth momentum could be sustained with a significant beneficial impact on living standards of ordinary Zimbabweans.

“Despite historically-high commodity prices projected by the World Economic Outlook and impressive progress in revenue mobilization, a relatively sizeable fiscal financing gap would emerge in 2011. Significant wage bill overruns relative to the budget and a large stock of outstanding domestic payments arrears accumulated by end-2010 are the main sources of fiscal pressures. The fiscal gap could be eliminated through the removal of ghost workers from the payroll, reinforced controls on employment levels, and a reduction in low-priority transfers to state-owned enterprises. It would be critically important to protect nonwage social and infrastructure expenditure which is essential for sustainable, inclusive growth.

“The multi-currency system continues to serve Zimbabwe well, and it should be strengthened by further progress in improving RBZ governance and measures aimed at reducing vulnerabilities in the financial system. The Governing Board of the RBZ (which was appointed in May 2010) has achieved a significant improvement in central bank governance, reporting, and organizational restructuring. Further steps are needed to accelerate financial restructuring of the financially-distressed RBZ. There is also an urgent need to strengthen prudential regulations and their enforcement to contain persistent financial sector vulnerabilities.

“Structural reforms need to be stepped up. Alignment of indigenization and empowerment objectives with respect for private property rights and the need to attract domestic and foreign investment, more flexible labor market legislation, and improved governance, particularly in the diamond sector, would be essential to strengthen the business climate and boost economic growth. It would also be important to guard against wage increases in both in private and public sectors in excess of productivity growth to prevent an erosion of competitiveness of labor-intensive industries that are critical for employment generation and poverty reduction.

“Zimbabwe remains in debt distress, which has been exacerbated by recent nonconcessional borrowing of the government. Significant social and developmental needs would be better addressed on a sustainable basis through grants or highly concessional financing, as onerous debt service payments could crowd out future social expenditures. A significant strengthening in policies and debt relief within a comprehensive arrears clearance framework supported by donors are essential for resolving Zimbabwe’s external payments arrears.

“IMF staff will continue to maintain a close policy dialogue and provide targeted technical assistance in the context of regular visits. Access to IMF lending resources would be subject to relevant IMF policies, including a track record of sound economic policies and a comprehensive strategy for the clearance of arrears to official creditors agreed among the government coalition partners and with official creditors.”

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