He who pays the piper calls the tune? The IMF's policies in Zimbabwe

Abstract

18 | International Union Rights | 24/1 FOCUS | WORLD BANK AND IMF He who pays the piper calls the tune? The IMF’s policies in Zimbabwe Economic and political crises have saddled Zimbabwe with a massive debt burden. As of 31 October 2016, the country’s public debt stood at US$11.2 billion (79 percent of GDP) of which US$7.5 billion (53 percent of GDP) is external debt. Of the US$7.5 billion external debt, US$5.2 billion is in arrears (Gov. of Zimbabwe, 2017 Budget Statement). The continued accumulation of external payment arrears since 1999 has undermined the country’s creditworthiness, resulting in the deterioration of relations with major creditors and compromising the country’s ability to secure new sources of financing. In March 2012, the country adopted the Zimbabwe: Accelerated Arrears Clearance, Debt and Development Strategy (ZAADDS). In June 2013, Zimbabwe signed a letter of Intent towards the International Monetary Fund’s Staff Monitored Programme (SMP, a critical step towards re-engagement with the Paris club creditors. Then in October 2015, Zimbabwe agreed with creditors in Lima to accelerate re-engagements with the international community. On 20 October 2016, Zimbabwe settled its overdue obligations to the IMF amounting to US$107.9 million. The IMF Board removed sanctions on Zimbabwe that relate to remedial measures applied on account of overdue financial obligations to the Poverty Reduction and Growth Trust (PRGT). The remedial measures removed related to: declaration of non-cooperation with the IMF, suspension of technical assistance; and removal of Zimbabwe on the list of PRGT-eligible countries. Now the country is under a so-called Staff Monitored Programme in which the IMF provides technical assistance and monitors implementation progress. The process of re-engagement with the IMF makes a consideration of Zimbabwe’s past experiences very timely. The future is far from certain. The IMF projects that real GDP for Zimbabwe will shrink to 2 .5 percent in 2017. The IMF projects that Zimbabwe will only experience a modest recovery of 1.6 percent in 2021. Inequality and Labour at Independence Zimbabwe joined the IMF at independence in 1980 and was caught in between two different economic ideologies of socialism and capitalism. Because of the historical imbalance in the political and economic sphere, the white minority (about 2 percent of the population) controlled almost 70 percent of arable lands. While the government adopted socialist concepts to address the inequalities, there was pressure on the government to adopt capitalist principles. The then Prime Minister Robert Mugabe remarked as follows: ‘my government, committed as it is to socialism… recognises the existing phenomenon of capitalism as an historical reality, which because it cannot be avoided has to be purposefully harnessed, regulated and transformed as a partner’. The labour market was also in favour of the white minority. As of 1982, the black population (96.7 percent) had a share of wages in employment at 60 percent, while the white population (2 percent) had a share of wages of 37 percent. The remaining 0.5 percent was shared between the coloured and Asian population, but more in favour of the coloureds. In an attempt to close the wage gap, the government commissioned the ‘Riddell Commission, 1981’ to look into issues of income inequality. The Commission Report highlighted ‘the necessity for action and for the introduction of policies directed specifically at alleviating poverty and narrowing differentials…’ According to the Commission, there was a need for a policy shift towards ‘growth with equity through planned change’, as opposed to the prevailing situation of ‘growth with widening inequalities’. On the minimum wages issue, the Commission also recommended that the basis for determining minimum wages should be solely on the needs of the workers and their families and not on the place of work or the type of the work performed. Whether a domestic or a factory worker, the criterion of need should determine minimum wages, hence the concept of the Poverty Datum Line (PDL) should be the determinant of the minimum wage. The government intervened in the labour market by stipulating minimum wages to reduce the widening wage inequality and also to reduce poverty levels. The minimum wages for domestic...