Can the IMF really drag Zimbabwe out of its crisis?

Trying to refill Zimbabwe's coffers through international loans is seen as a stop-gap measure in a dangerous political situation.

Zimbabwe’s coffers are empty. Salaries for the army and air force have been delayed for several weeks; and other civil servants will only receive their pay cheques by the middle of July.

For the government and 92-year-old President Robert Mugabe, this latest cash crunch couldn’t have come at a worse time, as a fierce succession battle is threatening to break apart the ruling Zimbabwe African National Union – Patriotic Front (ZANU-PF).

Despite the anti-Western rhetoric of the past years, in which Mugabe accused the international financial institutions of contributing to Zimbabwe’s economic collapse, the government has now gone with the begging bowl to the International Monetary Fund (IMF).

If new IMF loans of up to US$1 billion are approved this coming September, it would be the first time in 17 years. Experts, however, doubt whether the country can meet the requirements set by the IMF.

Meanwhile, former finance minister, Tendai Biti, accuses the government of lying to the IMF about the treasury’s capacity to repay the country’s massive debt.

Experts doubt whether Zimbabwe can meet the requirements set by the IMF

The process for international financial institutions to return to Zimbabwe was initiated last year, and a decision by the IMF to accept the government’s new restructuring plan was announced by the Zimbabwean government in Lusaka last month.

The move was prompted by a drastic shortage of United States (US) dollars – the favoured currency in the country since it abandoned the Zimbabwe dollar. Loans and bailouts from China have also not been forthcoming.

In a statement on 4 May, the IMF attributes the current liquidity woes to ‘drought, erratic rains, and increasing temperatures, [which] have reduced agricultural output and disrupted hydropower production and water supplies. Economic activity is severely constrained by tight liquidity conditions resulting from limited external inflows and lower commodity prices’.

It says Zimbabwe is now pursuing a ‘gradual, step-by-step approach to re-engaging with the international community’. It commends the country for reducing deficits in 2014 and 2015 and for meeting their commitments to implement reforms requested by the institution.

The Herald, a Zimbabwean government mouthpiece, reports that Zimbabwe has agreed to pay back its US$1.8 billion in arrears in order to qualify for new loans. It quotes the usually well-informed Africa Confidential’s warning that Zimbabwe will have to renegotiate a new economic restructuring plan, ‘which will include much tougher measures and more rigorous monitoring’.

Radical cuts in Zimbabwe’s public service, as requested by the IMF, would be political suicide

The Zimbabwean government’s plan includes cutting the public sector payroll, privatising state-owned enterprises and agreeing to compensate white farmers who were chased off their land. These are the kinds of reforms that Biti doesn’t think the government is serious about. He says a ‘gullible international community’ has been hoodwinked by the government.

South African business consultant Duncan Bonnet told ISS Today that foreign investors remain sceptical about these optimistic promises of a new engagement with international financial institutions. ‘Zimbabwe has made overtures to the IMF in the past, but even if they get a loan, there will still be a huge number of hoops to jump through to adhere to the IMF’s criteria. You need policy certainty; and that isn’t the case at the moment.’

Bonnet, a director at Africa House consultancy, says a lack of transparency about the country’s finances makes it very difficult to judge whether there is a real possibility to turn things around. Investors have been waiting for ‘the green light to go on’ – the end of the political crisis in Zimbabwe. ‘We’ve been saying the same thing for 10 to 15 years, but the situation is very fluid.’

Zimbabwe expert Piers Pigou agrees that making the changes required by the IMF in a volatile and dangerous political situation, where ‘the centre is barely holding’, seems unlikely. Despite the ‘debilitating atmosphere’, embedded corruption and a complete lack of confidence in the economy, sections of the international community are desperate to get Zimbabwe back on track. ‘The question is; can Mugabe deliver?’ asks Pigou.

For example, the civil service was almost doubled after the 2013 elections, endorsed by international observers. This was to repay supporters of ZANU-PF. Radical cuts in the public service, as requested by the IMF, would be political suicide.

Ordinary Zimbabweans aren’t likely to benefit from an IMF bailout in the short term

And even if loans would be forthcoming, the economic crisis is so deep that ‘it would be just kicking the ball further down the road,’ Pigou said. ‘ZANU-PF is trying to buy time, but [its reprieve] is getting shorter and shorter.’ He adds that the next few weeks will be crucial in showing whether the country could prevent a further decline into the realms of a de facto failed state.

Two factions within the ruling party have been facing off in a bruising political battle in the last several months. The one group can be dubbed the ‘reformists’. Led by Zimbabwean Vice-President Emmerson Mnangagwa and supported by the governor of the reserve bank, John Mangudya, they are in favour of engaging with the international community, says Pigou.

On the other hand, Mugabe, his wife Grace and a group of supporters called Generation 40 have been campaigning against Mnangagwa to succeed Mugabe. The succession battle has become increasingly hostile, with Mugabe lashing out on several occasions against war veterans – previously his strongest supporters.

So far, Zimbabwe’s neighbours and the Southern African Development Community have been silent about the renewed crisis. After years of mediation and accompanying Zimbabwe through its 2008 Global Political Agreement, the region was wrong to take its eye off the ball after ‘Mugabe’s so-called win in the 2013 elections,’ says Pigou. He believes the region should wake up to the realities of the Zimbabwean crisis.

Meanwhile, ordinary Zimbabweans are not likely to see any real benefit from a possible bailout in the short term. The news of salary delays came as a blow to government employees who fear the worst, and trade unions are now threatening a nationwide strike. Banks have been limiting the daily rate of withdrawals to prevent money from flowing out of the country.

Since the beginning of Zimbabwe’s economic crisis, thousands of Zimbabweans have left the country. Remittances from these migrants – most of whom work and live in neighbouring countries – are losing their value due to the weak rand-dollar exchange rate.

A very robust informal sector, which has managed to weather many crises these past 15 years, is also hard hit by the currency problems, which have made cross-border trade exceedingly difficult. Pigou says another question is whether international engagement would, in fact, lead to real economic reforms that would benefit everyone in the long term. For now, he says, the population is being held hostage by politicians who are distracted by the succession battle and desperate for short-term gains.

Liesl Louw-Vaudran, ISS Consultant

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