Zimbabwe suspends ‘special’ diamond dividends, gets IMF pat

Zimbabwe suspends ‘special’ diamond dividends, gets IMF pat

By Bernard Mpofu, HARARE, April 30 (The Source) – Zimbabwe’s government says it has suspended a special dividend on diamond sales it introduced last year, as part of a review of the fiscal regime for the mining sector.

Last year, the Reserve Bank of Zimbabwe ordered banks to levy 15 percent special diamonds dividends from gross sales of the gems under the 2014 Finance Act passed last April. Diamond firms protested against the directive, saying it would paralyse operations.

The country’s diamonds are produced by five mines in the government-controlled Marange diamond fields to the east of the country, as well as Rio Tinto’s Murowa mine in south central Zimbabwe.

According to a letter of intent jointly written to the IMF by finance minister Patrick Chinamasa and Reserve Bank of Zimbabwe governor John Mangudya on the progress of an ongoing IMF staff monitored programme, Zimbabwe’s economic position remains dire and requires full engagement with multilateral institutions.

“We have temporarily suspended the collection of the special dividend on diamond sales on the back of the drop in production and adverse price developments,” reads the letter in part.

The mining sector is now the main driver of the economy, accounting for over 60 percent of foreign currency.

Zimbabwe has plans to bring all diamond mining operations in the country under one firm in which the state will have a 50 percent shareholding.

President Robert Mugabe’s government has stakes of varying degrees in all firms operating in the Marange fields on the eastern border with Mozambique, but the new proposal could see Rio Tinto Plc’s Murowa Diamonds, which operates in south-central Zimbabwe, coming under government control.

Murowa, 78 percent owned by Rio, with the balance owned by Zimbabwean-listed spin-off RioZim, produced 344,000 carats of predominantly gem-quality diamonds in 2014.

In its review of the Zimbabwe staff monitored programme — an informal agreement between a government and IMF staff to monitor the implementation of a particular country’s economic reforms – the Fund notes that the southern African economy remains anemic, but commends the government for showing commitment and meeting programme targets.

“The Zimbabwean authorities have made progress in implementing their macroeconomic and structural reform programs, despite the economic and financial difficulties. During 2015, the authorities’ policy reform agenda will continue to focus on: (a) reducing the primary fiscal deficit to raise Zimbabwe’s capacity to repay; (b) restoring confidence in the financial system; (c) improving the business climate; and (d) garnering support for an arrears clearance strategy,” the IMF said.

“All quantitative targets and structural benchmarks for the first review under the staff-monitored program (SMP) were met. The authorities demonstrated strong commitment to the program, in a difficult economic and financial environment. Moreover, they have made meaningful progress in implementing other key structural reforms, such as making operational an asset management company and amending the indigenization and empowerment law.”

Zimbabwe’s commitment to reducing government expenditure, chiefly its runaway wage bill, has come under scrutiny in recent weeks after Mugabe’s public rebuke of finance minister Chinamasa over his push for a bonus payment freeze.