HARARE, October 20 (The Source) – Zimbabwe needs to revive its economic reform agenda and settle arrears to international creditors to access fresh capital to avoid prolonged recession, the International Monetary Fund’s resident representative said on Thursday.
The southern African country’s economy is already in recession, with a -0.3 percent growth rate expected for this year, the first contraction since 2008 when the economy shrank by 16.5 percent at the height of a hyperinflation crisis, the IMF said earlier this month.
It predicted a -2,5 decline for 2017 as the recession worsens in the absence of reforms.
Zimbabwe’s economy grew by an average 10.35 percent between 2009 and 2012 after dollarisation and under a power-sharing government set up by long-ruling President Robert Mugabe and the opposition.
But Mugabe and his Zanu-PF party’s victory in the 2013 elections has seen a reversal of the country’s economic fortunes which, in the absence of new financing, could face a prolonged recession.
Zimbabwe owes $1,8 billion to the World Bank, International Monetary Fund and the African Development Bank who are insisting on full repayment before discussing a new financial package, the first since 1999.
Finance Minister Patrick Chinamasa presented a settlement plan to the three lenders in Lima, Peru, last October as part of a process to reset relations with the international lending community. The plan was endorsed by the boards of the enders, who accepted Zimbabwe’s a self-imposed deadline of July, 2016, which has since elapsed.
The slow pace of reforms and the Mugabe government’s outright rejection of spending cuts proposed by Chinamasa last month have cast shadows over the Lima plan.
But IMF representative Christian Beddies said the plan was still on the table.
“On re-engagement, nothing has changed. Clear the arrears with the MFIs, without that nothing will move. Lima is not dead and I can say it is work in progress,” Beddies said on Thursday at an economic planning seminar in Harare.
“There is a real chance that this (recession) might happen. Let us do something about it. These projections might be perceived to be scarecrow but we do not want to scare anyone. We believe If nothing is done on the reform agenda and also financing, it is very clear that Zimbabwe needs financing, domestic investments and facilities from the international financial institutions.”
“There are governance and institutional issues that still need to be addressed..there seems to be a bit of lack of cohesion and vision which is needed for these things to be done.”
Part of the economic reforms include cutting the public sector wage bill which consumes 97 percent of government expenditure and restructuring state owned enterprises and parastatals.
Chinamasa’s proposal to shelve bonuses for two years was rejected by Cabinet in September. He also proposed to cut 25,000 state jobs in two years and close some embassies in a move that could save the cash-strapped government at least $335 million annually for the two years.