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10/07/2014 00:00:00
by Moneyweb.co.za
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THE economic crisis in Zimbabwe is deepening. The government has no money, most people have no work, an economy that rebounded until 2012 is barely ticking over, and consumer prices are falling as deflation takes hold.

Despite this, the International Monetary Fund (IMF) declared on July 8 that Zimbabwe was making progress on economic reform.

“The Zimbabwean authorities’ performance under the staff monitored program has been broadly satisfactory and the authorities have taken corrective measures to ensure a track record of policy implementation going forward.”

One may ask, what corrective measures?

As Zimbabwe watchers are well aware, Harare has long been cut off from new finance because it refused to service its debts.

Last year, as a first step towards rehabilitation, then Finance Minister Tendai Biti agreed to have the IMF monitor his reform program.

To the surprise of many, the Zanu-PF government that emerged after the August election is sticking with the plan known as a ‘staff monitored program' (SMP), which specifies policies to be implemented.

What are the results?

Among other things, Zimbabwe promised to hold public sector wage increases to 6%. But in fact they’ve gone up by 20% and now account for an extraordinary 85% of budgetary expenditures.

Similarly the 2013 program promised complete transparency of the diamond sector. That hasn’t happened.

And yet the IMF concludes that the program is “broadly satisfactory” even though financial insiders say that even under the most lenient interpretations barely one third of the commitments have been fulfilled.

In the past month the IMF has released two reports on Zimbabwe. Following executive board discussion in mid-June, a 1 500-word statement said the country’s “external position remains precarious” with usable reserves covering only two weeks of imports.

The economic situation was described as “fragile” with “comprehensive reforms” required for sustained growth, which for 2014 was marked down to 4%, 2% above World Bank projections.

The shorter, rosier July 8 report commends the government for “addressing the 2014 fiscal gap, improving the quality of public expenditures, enhancing financial sector stability, and moving forward delayed structural reform measures.”


Neither report mentions corruption, a subject on the lips of many Zimbabweans.

No wonder Finance Minister Patrick Chinamasa boasts of good relations with the IMF, calling the engagement “very constructive.”

Last week, Chinamasa said the IMF vote of confidence boosts the chances of Zimbabwe eventually regaining access to multi-lateral credit.

Perhaps the IMF’s happy talk can be forgiven, as the lines of communication are open and indeed intensifying. The fund is sending a resident representative to Harare and undertaking a further review of the SMP in September, after which a new arrangement is likely.

Meanwhile the economy stagnates amid mounting uncertainty about the inevitable transition to a post-Mugabe era. No one knows which way the country will go after the 90-year-old Mugabe is gone.

Zimbabwe is broke, with a $10 billion foreign debt, a sum equal to what the economy produces in a year. Neither China nor South Africa will lend to Zimbabwe until the IMF gives its OK.

Former Prime Minister Morgan Tsvangirai, a leader of the fragmented opposition, is right when he observes that Mugabe “is marooned from the reality of the national situation, oblivious to the daily predicament facing Zimbabweans as they struggle to survive."

The IMF does know what is happening but has chosen to sugarcoat the truth.

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