Business

The IMF is resisting calls to offer Zimbabwe new loans

The International Monetary Fund nameplat Image copyright Getty Images
Image caption The International Monetary Fund is resisting pressure to lend more money to Zimbabwe

The International Monetary Fund has said it will not lend more money to Zimbabwe, because the country is in arrears on repaying previous loans.

The IMF's specialist Africa team is in Harare finalising a programme to help the government revive its stricken economy, with full details to be released next week.

IMF Assistant Director for Africa, Domenico Fanizza, told the BBC new loans were out of the question.

"We cannot in the current situation, because Zimbabwe runs arrears with the Fund and also other institutions like the World Bank and African Development Bank," he said.

Mr Fanizza also expressed concern about the government spending more than three quarters of tax revenues to pay the salaries of more than 250,000 workers employed by the state.

"The country, to grow, needs investment. This does not happen. There is no money, there is not enough support and all the money that is generated through tax collection goes into paying the wages," he told the BBC World Service's Business Update programme.

Embarrassing

Zimbabwe's Finance Minister, Patrick Chinamasa, has admitted dealing with the issue will difficult.

"I am embarrassed that our wage bill is some 76% of whatever revenue we receive. It's not good, it's not sustainable," he said.

"We have to create the necessary political climate, build consensus in order to tackle the issues. I can assure you that we are working on this issue," Mr Chinamasa said.

President Robert Mugabe raised salaries for government workers by 14% early this year, keeping promises made in the run-up to last year's election.

It is feared any move to reverse that would provoke unrest among well paid civil servants.

Image copyright Reuters
Image caption "Evil machinations" - Zimbabwe's president criticises the policies of the European Union and United States

On Thursday, addressing the United Nations in New York, President Mugabe criticised the EU and US.

"Because Zimbabwe has thus been pre-occupied with the empowerment of its people economically, she has become a victim of the evil machinations of Western countries, namely the United States of America and the European Union, who continue to apply unilateral and illegal sanctions as a foreign policy tool to achieve short-term political objectives, particularly regime change," he said.

In a reference to Washington and Brussels hoping for a change of government in Harare he said: "Regime change is a diabolical, illegal policy of interference in the domestic affairs of my country and no good can come from undermining our economy, or depriving our citizens of the necessities of life."

$9bn debt

The country is still recovering from the collapse of its economy. Hyperinflation made the Zimbabwean dollar virtually worthless and led the nation to adopt the US dollar as its unofficial currency.

Zimbabwe remains frozen out of the international lending markets because it has fallen behind with repayments to institutions like the IMF.

Since last year the Fund has been guiding the government through a programme aimed at helping it either clear or push back repayments of about $9 billion in external debts, which would give it access to much-needed international credit.

Private sector

The Corporate Council on Africa, a non profit organisation based in Washington, which promotes business and investment between the United States and nations in Africa, believes Zimbabwe will bounce back.

Stephen Hayes, President and Chief Executive of the CCA, told the BBC the US needed to keep ties open to Zimbabwe.

"Frankly if you want the Zimbabwe economy to open up you're going to have to have some ties and I think there's a vibrant private sector that's not linked to the Mugabe regime," he said.

"There's obviously a part of the economy that's heavily controlled as well," he added, "but I think we need to be linking more directly and openly with the private sector there, because things are going to change in Zimbabwe eventually."

Stephen Hayes revealed the Corporate Council on Africa is planning to take a business delegation to Zimbabwe later this year.

Foreign investment

Breathing life into Zimbabwe's stagnant economy requires vast amounts of foreign capital, money that is hard to come by when Harare is in effect frozen out of debt markets.

The central bank has revealed that foreign investment more than halved in the first six months of the year.

Zimbabwe's economy has been going downhill for more than a decade, with shortages of cash and industries operating below capacity, or closing down.

The IMF's team in Harare has a tough task convincing the government to carry out the necessary economic reforms and the Fund will reveal more about its progress in Zimbabwe in a few days.

"There are major challenges, the economy's slowing down, there is a liquidity crunch, there are structural issues and there are budgetary issues," said the IMF's Mr Fanizza.

If the IMF team get Zimbabwe to divert some of its tax revenues away from paying civil servants to invest in infrastructure that will be a major achievement.

The finance minister says he is embarrassed by the bill to pay state employees, but either reducing their wages, or laying off civil servants, would face resistance from President Mugabe.