The IMF is no Father Christmas

News that the International Monetary Fund had approved a Staff Monitored Programme for Zimbabwe was greeted with glee last week yet studies have shown that wherever the IMF goes, its cure is worse than the disease it was trying to cure.

The history of Zimbabwe itself has shown this.

Zimbabwe did well in the first decade of independence when it was not on an IMF programme.

It did very badly when it introduced the Economic Structural Adjustment Programme in the 1990s.

The country is doing very well now, on its own, and the IMF has acknowledged that average growth since 2009 was 7 percent, the best Zimbabwe has ever done.

There is a gap, some might point out.

Zimbabwe did so badly between 1999 and 2008 that it almost collapsed when the country was not receiving any support from the IMF.

It might be difficult to agree on why this happened but best way to answer this is to ask another question: how did the country recover, because it has not been receiving any assistance from the IMF?

There are various theories. Some argue that it was the introduction of the United States dollar. Others say it was the coming into government of the Movement for Democratic Change. Yet others argue it was the financial brilliance of Tendai Biti.

Some believe it was neither of the above. People simply started working together, and became more resourceful when they realised no one was going to rescue them.

Whatever the answer, the fact is Zimbabweans found a solution on their own. The IMF was not involved?

So one might ask, why do they need the IMF now?

According to the IMF itself, Zimbabwe needs it because the strong rebound seen after the end of hyperinflation seems to have run its course.

“GDP growth has moderated from over 10 percent in 2011 to an estimated 4½ percent in 2012, with marginally better growth projected for 2013, as mining output expands.

“Going forward, sustaining high growth will require determined efforts at economic reform. In this regard, the SMP already envisages important reforms in public financial management, financial sector regulation, and other areas.”

The IMF emphasis is on financial reform, not on production.

Former Tanzanian Minister and scholar Abdul Rahman Babu, who argued that the IMF cure was worse than the disease, had this to say:

“If you are at an economic cul-de-sac and you try to save the situation by going for financial rather than economic solutions, then you are bound to fail.

“Money, after all, is only the outcome of the economy, and not the other way round. A viable solution can only come out of the real economy: production, exchange, distribution and consumption”.

Nowhere in the IMF statement does it talk about production. Instead it states that “a successful implementation of the SMP would be an important stepping stone toward helping Zimbabwe re-engage with the international community”.

While Zimbabwe is not an island and should re-engage with the international community, the question should be re-engage to do what? On whose terms?

The IMF comes with its own terms of re-engagement and these are usually not the terms that Zimbabwe wants. Though the coming in of the IMF was agreed to by cabinet, politicians do not always do what is good for the people.

According to Babu, the monetarist solutions of the IMF and the World Bank are not for reactivating the basic sectors of the economy, but for pushing countries deeper into the world market that continues to operate according to its predetermined order of priorities.

“And in that order we (African countries) are to remain producers of primary commodities and our finances are to be adjusted accordingly to facilitate that function, no matter what harm this does to the rest of the economy.”

According to the IMF statement: “The SMP focuses on putting public finances on a sustainable course, while protecting infrastructure investment and priority social spending, strengthening public financial management, increasing diamond revenue transparency, reducing financial sector vulnerabilities, and restructuring the central bank.

“In particular, fiscal consolidation efforts aim to move the primary budget balance from a deficit in 2012 to a small surplus in 2013, helping start what should be a gradual rebuilding of fiscal buffers and international reserves.”

The question is where will the money that the IMF wants to manage come from, if the country is not focussed on production?

The answer is probably credit lines. If so, how have we survived so far without credit lines?

The issue is not that Zimbabwe does not need economic reform. It does? But it needs people-centred, inward looking reform.

Below is the full statement of the IMF director.

IMF Managing Director Approves a Staff-Monitored Program for Zimbabwe

Press Release No. 13/174
June 13, 2013

The Managing Director of the International Monetary Fund has approved a Staff-Monitored Program (SMP) for Zimbabwe, covering the period April-December 2013. An SMP is an informal agreement between country authorities and Fund staff to monitor the implementation of the authorities’ economic program. SMPs do not entail financial assistance or endorsement by the IMF Executive Board. This is Zimbabwe’s first IMF agreement in more than a decade.

The SMP supports the Zimbabwean authorities’ comprehensive adjustment and reform program and has been endorsed by Zimbabwe’s Cabinet, a strong signal of their commitment. A successful implementation of the SMP would be an important stepping stone toward helping Zimbabwe re-engage with the international community.

The SMP focuses on putting public finances on a sustainable course, while protecting infrastructure investment and priority social spending, strengthening public financial management, increasing diamond revenue transparency, reducing financial sector vulnerabilities, and restructuring the central bank. In particular, fiscal consolidation efforts aim to move the primary budget balance from a deficit in 2012 to a small surplus in 2013, helping start what should be a gradual rebuilding of fiscal buffers and international reserves. A decline in commodity export prices, financial sector stress, and uncertainties related to the election year, however, pose some of the risks to the program.

Zimbabwe has made considerable progress in stabilizing the economy since the end of hyperinflation in 2009. Since then, GDP has grown by an average of over 7 percent and inflation has remained in the low single digits, thanks largely to the multi-currency system. Government revenues have more than doubled from 16 percent of GDP in 2009 to an estimated 36 percent of GDP in 2012, allowing the restoration of basic public services.

The economic recovery, however, has been accompanied by very large current account deficits in recent years, while international reserves remain very low, at around one week of imports. In 2011 and 2012, sizeable public sector salary increases crowded out spending in key areas. Those increases, combined with significantly lower-than-expected diamond revenue in 2012, resulted in fiscal stress, including the accumulation of domestic payments arrears, which necessitated significant adjustment in the second half of 2012. In addition, rapid credit growth combined with slow implementation of financial sector reforms, has exacerbated financial sector vulnerabilities.

The strong rebound seen after the end of hyperinflation seems to have run its course. GDP growth has moderated from over 10 percent in 2011 to an estimated 4½ percent in 2012, with marginally better growth projected for 2013, as mining output expands. Going forward, sustaining high growth will require determined efforts at economic reform. In this regard, the SMP already envisages important reforms in public financial management, financial sector regulation, and other areas.

Zimbabwe’s external debt is high and largely in arrears, cutting off the country from access to most external financing sources. In particular, Zimbabwe remains unable to access IMF resources because of its continued arrears to the Fund. А strong track record of maintaining macroeconomic stability and implementing reforms, together with a comprehensive arrears clearance strategy supported by development partners, will be essential for resolving Zimbabwe’s large debt overhang.

IMF staff will remain engaged with the authorities to monitor progress in the implementation of their economic program, and will continue providing targeted technical assistance in order to support Zimbabwe’s capacity-building efforts and its adjustment and reform program.

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