17 May 2017

Zimbabwe: Agric, Mining to Drive Economic Growth - IMF

The International Monetary Fund expects recovery in agriculture and mining to drive economic growth this year but warns that maintaining the growth momentum would require action to expedite plans to reduce Government deficit to a sustainable level.

But economists said growth will only come if Zimbabwe escalates value addition and beneficiation and development of the agro-based export sectors such as horticulture. "In agriculture, it is clear, whether it is Command Agriculture . . . we are likely to have more maize this year. But I do not see how this will invigorate growth, unless there is value addition and there is more manufacturing done," University of Zimbabwe's Professor Albert Makochekanwa said.

Although the IMF mission that was in the country early this month warned that excessive Government spending, if continued, could exacerbate the cash scarcity, further jeopardise the health of the external and financial sectors, and, ultimately, fuel inflation, it noted progress already achieved in other economic fronts through a number of initiatives such as support towards agriculture. The Bretton Woods Institution called for urgency in implementing reforms which include civil service and discretionary spending. "Building on the progress already achieved, the Government is encouraged to demonstrate that Zimbabwe is open for business.

"This will include enhancing efforts to tackle corruption, encouraging private sector investment, allowing the market to determine prices, promoting labour flexibility, and creating a stable legal and regulatory framework to reduce policy uncertainty. Moreover, there is room for enhancing domestic revenue mobilisation, boosting transparency in the mining sector, and improving governance in public enterprises to strengthen the country's fiscal position," IMF team leader Ana Lucía Coronel said in a statement.

"Spending pressures stem from high employment costs, government transfers to support specific economic sectors, and elevated discretionary expenditure. Action on these three fronts, while safeguarding social outlays, is therefore crucial. Reducing the wage bill could involve reviewing allowances and benefits and evaluating the size of the civil service with a view to eliminating non-essential posts. Reinforcing the Government's efforts to curtail non-priority spending is also pressing," she said.

Economists said while the issues that the IMF raised were pertinent, Government was already working on the issues and this showed that Government was in the right direction.

"The IMF report is reinforcing what Government is already doing but there is need for urgency in certain areas especially industry rejuvenation and rationalisation of staff costs. The gist of the report is that we are in the right direction but we need to do more and to make certain sacrifices as individuals and the country," Africa University economist Thomas Masese said.

Commenting on calls by the IMF to stop excessive spending through staff rationalisation Mr Masese said it was understandable that Government was in a tough fiscal corner but still "unnecessary allowances such as annual bonus can be done away with".

Furthermore, Mr Masese said restraint should be exercised on domestic borrowing as it is beginning to crowd out domestic investment and inflation is beginning to show its head. The IMF said the large fiscal imbalances are being financed by domestic borrowing since Zimbabwe is faced with a difficult external environment limiting access to foreign inflows.

The IMF team recommended taking action to unleash the potential of the private sector and ensure that growth benefits the most vulnerable segments of the population. "Restoration of confidence is essential for attracting the necessary dollar inflows to the economy. Refraining from central bank financing of the deficit and containing the issuance of debt and quasi-currency instruments is vital.

"Furthermore, the financial sector should restore its role of intermediating resources in the economy by channelling deposits to productive credit rather than financing fiscal operations," the IMF said.

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