Why civil service and land audits were stalled

Donor funds for the audits of the civil service and land were available but the two were stalled because in the case of the civil service the government refused to include the security services and on land there were restrictions on the scope.

This was revealed in an International Monetary Fund report on the progress in Zimbabwe since the formation of the inclusive government which was released by Wikileaks. The cable was dispatched in October 2009.

There was also s debate on the Multi-Donor Trust Fund with the World Bank saying that some of the funds must eventually be channelled through the government but donors rejected the idea.

A visiting World Bank infrastructure expert from Mozambique chimed in to lecture donors about the wisdom of following the World Bank lead on such matters, noting that the Bank had the highest fiduciary standards and would never make a misstep since it had to answer to its board.

Full cable:

Viewing cable 09HARARE820, IMF REPORTS PROGRESS AND PROBLEMS FOR ZIM

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UNCLAS SECTION 01 OF 03 HARARE 000820

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ADDIS ABABA FOR ACSS

STATE PASS TO USAID FOR J. HARMON AND L. DOBBINS

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E.O. 12958: N/A

TAGS: ECON EFIN PGOV EAID ZI

SUBJECT: IMF REPORTS PROGRESS AND PROBLEMS FOR ZIM

MACROECONOMY

¶1. (SBU) SUMMARY: During an October 13 briefing for OECD

Ambassadors in Harare, IMF Mission Chief Vitaly Kramenko

reported that progress in budgetary execution was

encouraging, but that problems remained, including concerns

about the Reserve Bank of Zimbabwe (RBZ), wages and rule of

law. He said the IMF would not pursue a staff monitored

program unless donors were committed to providing a debt

treatment for Zimbabwe. The EU reported its dialog with the

GOZ was stalled and the World Bank had no progress to report

on the programmatic Multi Donor Trust Fund (MDTF). Apart

from the Ministry of Finance, there are few bright spots on

the economic horizon. END SUMMARY.

—————–

IMF SEES PROGRESS

—————–

¶2. (SBU) An IMF team led by Vitaly Kramenko provided an

in-brief to OECD Heads of Mission on October 13; the team

expressed willingness to provide an outbrief on October 26,

perhaps to include a teleconference with the like-minded

donor meeting in Berlin. They reported that the Finance

Ministry had maintained close contact with the IMF since the

team’s last Mission in March, and they thought they had a

solid understanding of fiscal developments. On that basis,

they believed that Zimbabwe had made significant progress.

The multi-currency system was generally working, and the IMF

stood ready to provide advice on how the GOZ might adapt it

upon selecting an anchor currency. Cash budgeting was

successful, and the Zimbabwe Revenue Authority (ZIMRA) was

doing well, following implementation in the revised budget of

IMF recommendations on tax policy. Service delivery, though

still far from optimal, had improved, with schools and

hospitals open.

———————–

BUT ALSO MAJOR CONCERNS

———————–

¶3. (SBU) Despite this progress, the IMF saw three major

problems threatening economic recovery in Zimbabwe. First,

Kramenko said that the IMF had received no data since March

from the RBZ, and had concerns relating to the Bank. There

was no solid foundation for improved RBZ governance; the

Reserve Bank Act did not follow the IMF’s recommendations,

and the IMF believed that Biti had been forced to make

significant concessions as the Act progressed through the

Cabinet. As it stands, the Act does not establish an

institutional setting with appropriate checks and balances,

but instead relies on personalities. Kramenko said the

payment system was just starting to operate in the

multicurrency environment, and lack of confidence in Governor

Gono created vulnerabilities. A rumor recently circulated

among members of the donor community that Gono had

misappropriated commercial banks’ statutory reserves lodged

at the RBZ. Kramenko noted that the IMF had no evidence that

the RBZ was holding counterpart funds and thus the rumor

could be true. If reserves proved unavailable when required,

confidence would be destroyed and economic recovery would

Qsuffer a severe setback. (NOTE: Local bankers, who have a

strong vested interest in the matter, have told Econoff they

are confident the RBZ has not misused their reserves. END

NOTE.)

¶4. (SBU) Kramenko also expressed concern about civil service

wage increases. He said they threatened the economic

recovery in two respects. First, they undermined private

sector competitiveness. Without a national currency,

devaluation to restore competitiveness is not an option, so

HARARE 00000820 002 OF 003

this effect will endure. Second, they eliminated fiscal

space for infrastructure investment. This ultimately

undermines both service delivery and competitiveness.

¶5. (SBU) The IMF’s third issue of concern was rule of law and

property rights. Kramenko noted that continuing farm

invasions had a clear effect on investment climate,

especially for agriculture. In addition, uncertainty about

implementation of indigenization requirements affected other

sectors, including the mining sector.

—————————

NEXT STEP DEPENDS ON DONORS

—————————

¶6. (SBU) Kramenko told the Heads of Mission that the IMF

would not move forward to establish a staff monitored program

(SMP) for Zimbabwe in the absence of donor commitment to

support a debt treatment. While there was no guarantee an

SMP would succeeed in any case, there was no point in

implementing one without an incentive for good performance.

————————————-

EU, WORLD BANK REPORT ON DEVELOPMENTS

————————————-

¶7. (SBU) The Swedish Ambassador told the group that the GOZ –

EU dialog (which has the potential to restore GOZ access to

direct EU financial support) is languishing. The GOZ has

assigned negotiating responsibility to a team of six

permanent secretaries. The permanent secretaries are long

time functionaries with reactionary habits and likely ZANU-PF

sympathies. They appear to have neither the inclination nor

the authority to engage in serious discussions about rule of

law and protection of property rights. The EU has told Prime

Minister Tsvangirai and MDC-M Minister of Regional

Integration and International Cooperation

Misihairabwi-Mushonga that the effort is stalled, and is

waiting to see if they do something about it.

¶8. (SBU) World Bank representative Mungai Lenneiye reported

on the programmatic MDTF. (NOTE: The analytical MDTF, to

which the USG provided a contribution, is operational. END

NOTE.) He said the Bank board had approved the MDTF and

authorized $1 million, but donors had not yet contributed

because they remained concerned about the administrative

rules for operation of the MDTF. The Bank thought that the

MDTF Operational Manual should include the possibility of

direct funding to government in the future, even though for

the time being concerns about public sector financial

management precluded budget support. Donors disagreed. A

visiting World Bank infrastructure expert from Mozambique

chimed in to lecture donors about the wisdom of following the

World Bank lead on such matters, noting that the Bank had the

highest fiduciary standards and would never make a misstep

since it had to answer to its Board.

¶9. (SBU) Donors also briefed the IMF team on the pending

civil service and land audits. The civil service audit was

stalled because the GOZ refused to include the security

services. The land audit was similarly stalled because of

Qservices. The land audit was similarly stalled because of

GOZ restrictions on scope. In both cases, funding was

available.

¶10. (SBU) COMMENT: Biti’s relative success at the Ministry of

Finance remains an isolated, if important, development.

Zimbabwe’s economic stabilization is laudable, but progress

from stabilization to recovery will remain glacial until

decision-makers exercise the political will to move forward

HARARE 00000820 003 OF 003

on rule of law and protection of property rights. It remains

evident that RBZ Governor Gono has the ability to undermine

confidence singlehandedly, and his further marginalization,

if not removal, is much to be desired. END COMMENT.

PETTERSON

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