The IMF has agreed to lend US$7.32 bn to the Zimbabwean government despite continued concerns about corruption in the land reform process; the cost of supporting Zimbabwean troops in the Democratic Republic of Congo (DRC); a planned privatisation of the Hwange power plant; and the reintroduction of price controls.
In June the IMF halted funds after the government sent more troops to the DRC on the grounds that the action risked worsening the fiscal and balance of payments situation. Somewhat surprisingly, the government has managed to convince the IMF that the DRC government is covering most of the US$3m a month it costs to keep the troops in the DRC. It has also agreed to implement a two-year inception phase of the Land Reform Programme with transparent procedures for land acquisition and the payment of fair compensation for land acquired. It will examine other options for the controversial Hwange power plant privatisation and agreed to liberalise the exchange rate and tariffs, to remove price controls, and hold down public sector wages. Despite the government’s reversal of earlier reforms, donors want to support President Mugabe, who is fighting an election next year, and could face an army insurgency. Given his need to win voters’ support, it seems unlikely that Mugabe will stick to the agreed Letter of Intent. This suggests that politics remains a key motivation for donors in Zimbabwe despite their claims to be selective with aid on the basis of sound economic policies.
Forthcoming IMF reports
The following 5 papers will be available separately and in a joint publication on the IMF website – www.imf.org – from 16 September (assuming Board approval):
- The Fund’s Approach to Social Sector Issues and Policies;
- Linking Debt Relief to Poverty Reduction;
- Status Report on the Follow-up to the ESAF Reviews;
- Chairman’s Statement on ESAF;
- Financing ESAF and the HIPC Initiative.