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Mthuli Ncube’s IMF-Backed Reforms Set To Hit Zanu-PF Loyalists The Most

Finance and Economic Development Minister Mthuli Ncube and the International Monetary Fund(IMF) have negotiated reforms that will hit agricultural subsidy and touch the heart of Zanu-PFpatronage structure, a British publication has said.

In a long analysis of the Staff Monitored Programme (SMP) deal signed between Mthuli Ncube on behalf f the Zimbabwe Government and the IMF on the other side, Africa Confidential says the Presidential Input Scheme has been killed off while all other Government support to rural farmers have also been cut off, a development which the publication says will anger the Zanu-PF support base.

The cost of farm support has surged from less than 1% of GDP in 2013 to 4.2% last year – when the government was buying maize at a guaranteed price of $390 per tonne, but selling it at $240, and at a time when grain was available on the regional market for $290.

Moreover, the prime beneficiaries of this support have often been well-connected individuals with much larger farms. The money is distributed by regional governors, themselves political appointees.

The IMF describes the new Staff Monitored Programme on Zimbabwe as carrying risks ’tilted to the downside’.

The programme, setting targets for a year and based on the Transition Stabilisation Programme (TSP) already launched by Ncube some months ago, imposes belt tightening that is severe even by the standards of ‘fiscal consolidation’ routinely proposed by the Fund for troubled economies.

This medicine will be hard to swallow, particularly for public-sector workers, even if partially offset by enhanced social measures.

But the real political challenge comes from the structural measures, which will gradually erode some of the most lucrative patronage foundations of the ZANU-PF power structure.

Nowhere will the pressure be felt more than in the overhaul of farm subsidies, which have fattened the incomes of the political loyalists who have done well from the seizure of land from white farmers.

Severe pay curbs are promised for the public sector workforce in a bid to stabilise state finances, making it clear that the government’s beleaguered modernisers have taken on a challenge as politically as it is economically daunting.

While reform of the exchange rate system is primarily a threat to the small elite circle who profit from the gap between official and parallel rates, the overhaul of the agricultural subsidy system promises to challenge the vested interests of privileged land-holders across the country, in the rural areas where ZANU-PF harvests its votes.

No wonder the IMF, in announcing the SMP, commented that: ‘The large fiscal adjustment needed will be politically and socially difficult to implement.’

However, with consumer prices set to rise 80% this year and economic output shrinking, Ncube and the Fund believe imposing severe austerity to prevent a slide into hyper-inflation and the collapse of government finances is the only option.

There are few options other than to agree a programme with the IMF if Zimbabwe is to reschedule its foreign debt and reopen the door to new finance.

Even so, the government’s economic reformers are demonstrating considerable ambition and nerve in seeking to overhaul farm subventions and public sector pay simultaneously – however desperate the need for action.

In 2017 the cost of paying public sector wages ate up 82% of all government revenue. Ncube aims to slash this to 47% this year – and cut the wage bill by 2.5% this year – by limiting pay rises to just 18%; that is less than a quarter of the forecast total inflation and in real terms will slash incomes by about a third. Top civil servants will see their pay cut by 5%.

The reform of farm subsidies will not have such an immediate impact, being phased through to 2021 and potentially subject to adjustment as the government seeks to protect farm output. But over three years it aims to phase out massive and expensive distortions.

The cost of farm support has surged from less than 1% of GDP in 2013 to 4.2% last year – when the government was buying maize at a guaranteed price of $390 per tonne, but selling it at $240, and at a time when grain was available on the regional market for $290.

Moreover, the prime beneficiaries of this support have often been well-connected individuals with much larger farms. The money is distributed by regional governors, themselves political appointees.More on ZOOMZimbabwe…  VIDEO: Indigenisation policy is dead, says Mthuli Ncube

Also set for overhaul is the Presidential Input Scheme of free farm supplies and the Command Agriculture system of loan guarantees to help farmers buy inputs such as fertiliser – established to fill a funding gap because Zimbabwe’s history of expropriation deters bankers from regarding land as adequate collateral for lending working capital.

Difficult reforms may also be in the air for state-owned enterprises, 43 of which are set for privatisation or liquidation. But this element of the programme is treated as less urgent, because it makes little sense to shut enterprises that might find buyers once the economy has made some progress and investor confidence has begun to revive.

For all the social pain and political bravery that the programme requires, there is a potential reward: the IMF believes that, after contracting by 2.1% this year, economic output should rebound by 3.3% in 2020, with inflation plunging back to a somewhat more survivable 14.1%.

If Zimbabwe can manage to meet the performance targets set under the SMP, the Fund will be able to press Western governments to join in the bridging loan being led by France and Japan to clear Harare’s $2.3 billion arrears to the World Bank, African Development Bank and European Investment Bank and thus open up the path to new assistance from these and other donors. That aid will be vital.

Ncube has drawn up plans to provide ‘cash transfer’ welfare support and subsidised food for the poor, subsidise public transport, help small farmers and provide more free school meals. The IMFlauds these proposals, but the government has no money to implement them and the spectre of widespread social unrest looms large.

Africa Confidential is a fortnightly newsletter covering politics and economics in Africa. It was established in 1960 and is owned by the British company Asempa Limited. It is the world’s leading fortnightly newsletter on politics in Africa with exclusive inside information about issues affecting the continent. — Read original article on Africa Confidential

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