Zim bailout beyond arrears clearance . . . Zidera a major stumbling block . . . Need for robust, fiscal and monetary reforms

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    Kudzanai Sharara
    Zimbabwe’s chances of accessing financial bailout are not only limited to arrears clearance to the international financial institutions amid indications the ongoing re-engagement efforts by the Government might be scuttled by continued existence of the Zimbabwe Democracy and Economic Recovery Act (ZIDERA), well-placed sources have said.

    It also emerged  that comprehensive and consistent package of policies for sustainable inclusive growth remain critical to unlock fresh funding for Harare.

    This comes as Zimbabwe’s external arrears continue mounting with the country owing $2,1 billion to international financial institutions and a further $3,3 billion from bilateral arrangements. In total the country’s external debt amounts to $8,8 billion with $5,6 billion in arrears. But for the country to clear the arrears, it will also have to convince the US to remove ZIDERA, which even after arrears clearance will still be a stumbling block to provide funding to the southern African state.

    According to a source close to the re-engagement process, Zimbabwe “has one important enemy that is ZIDERA and is blocking other countries” from extending a helping hand.

    US President Donald Trump in mid-August signed into law the Zimbabwe Democracy and Economic Recovery Amendment Act of 2018’ (ZIDERA Act), first enacted in 2001.

    The original ZIDERA was passed into law just after the turn of the century in 2001 and is believed to be responsible for decimating 50 percent of Zimbabwe’s gross domestic product (GDP) over nearly a decade to 2008.

    The US is part of the Paris Club, collectively owed $3,2 billion, and any member within the grouping has the power to veto decisions.

    This week, Government led by the Minister of Finance and Economic Development, Professor Mthuli Ncube, held a crucial meeting with co-operating partners and International Financial Institutions (IFIs) to discuss and map the way forward on the country’s Arrears Clearance Road Map in Bali, Indonesia.

    Following the meetings, Minister Ncube met US Deputy Assistant Secretary of Treasury, Erick Meyer, who requested that Zimbabwe view ZIDERA in a positive way.

    Meyer also pledged to arrange further meetings for Zimbabwe in Washington.

    Apart from dealing with ZIDERA, the source said Zimbabwe will have to put in place sustainable reforms if it is to access fresh funding from multilateral financial institutions.

    This is in addition to clearing its arrears with the IFIs.

    The source said sentiments among multinational institutions is that Zimbabwe has not done much in terms of reforms and if given debt relief might still spend on things that do not develop the country.

    However, Government has already embarked on that journey and through the Transitional Stabilisation Programme, will undertake policy reforms centred on political and economic reforms, especially fiscal consolidation, state enterprises reforms, monetary sector reforms and a road map on arrears clearance.

    The TSP reforms are also in line with the path multinational institution would want the country to take.

    According to the source, policies that Zimbabwe must prioritise in the short time include resolving policy uncertainty around bond notes.

    Bond notes seem to have sapped confidence in the monetary system and a solution will have to be found to deal with the surrogacy currency.

    There are also calls for Government to limit monetary financing and initiate fiscal consolidation. The fiscal imbalances that currently exist in the economy are a result of excessive monetary financing of both non-productive and productive sectors in the economy.

    Demand pressures attributable to fiscal imbalances have continued to increase the supply of money within the economy, thereby eroding the gains and putting too much pressure on prices and the foreign currency market as evidenced by the thriving parallel market rates.

    Some of the options available for fiscal consolidation include increasing social spending targeting the poor as well as rural households, revealed the source.

    There is also urgent need to decide on a working monetary framework as there is no consensus on the multi-currency system, where the US dollar is the anchor currency. In the medium term, the source advised that Zimbabwe will have to rebuild reserves and this is in line with what Government has been at pains to explain on what needs to be done before introducing a local currency.

    Other medium term priorities would include reducing the infrastructure gap, enhance agricultural productivity and adopt structural reforms for private sector led.

    The country will also have to undertake structural reforms that seek to address high labour costs which at the moment are incentivising informality while heavy Government presence distorts competition. The official believes such reforms could increase the country’s Gross Domestic Product by nearly 8 percent over five years.

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