Speed things up—IMF-World Bank: reforms, resilience and reduce poverty

Enact reforms quicker. Execute faster policies. Prioritise growth and resilience building that includes women, girls and youth in national budget allocations — no room for mistakes.

This was a resounding call throughout for seven days from October 14 to 20, 2019, at the World Bank Group (WBG) and International Monetary Fund (IMF) 2019 fall annual meetings in Washington, DC.

Also, that week, Parliament of Zimbabwe’s Portfolio Committee on Budget, Finance and Economic Development was having a pre-budget consultative meeting with the Finance and Economic Development ministry. Finance minister Mthuli Ncube had recently released his 2020 pre-budget strategy paper aimed at facilitating discussions on policy direction for the 2020 national budget.

The main highlight of the IMF-WBG annual meetings — the World Economic Outlook — was presented by Gita Gopinath, IMF economic counsellor who said, “The global economy is in a synchronised slowdown,” adding that the IMF is once again down grading global GDP growth for 2019 to 3% — it’s slowest pace since the global financial crisis. For sustainable growth, she said, “It’s important that countries undertake structural reforms to boost productivity, improve resilience and lower inequality. These reforms are always more effective when good governance is already in place.”

“To summarise: the global economic outlook remains precarious with a synchornised slowdown and an uncertain recovery. At 3% growth, there is no room for policy mistakes and there is an urgent need for policy-makers to support growth,” she added.

The Opportunities

Since Independence, the government of Zimbabwe (GoZ) has always wanted to urbanise, but in the countryside, it looks the same as four decades ago, for the most part; same roads — or lack of new roads — or no new roads, little infrastructure, long distances travelled to receive child healthcare and not modified for vulnerable groups such as girls. A fast, downward spiral in quality of life has been exacerbated by the current drought and food insecurity across the country.

Against this backdrop, structural reforms, resilience and poverty reduction efforts through inclusion of women, girls and job creation for a booming youth population had a substantial allocation to the IMF-WBG annual meetings agenda in a consistent and central way. Fiscal policy plays a crucial role in planning development agendas and for “downside risks, contributing to financial stability, financing the 2030 Sustainable Development Goals, and finally, in addressing climate change, “ IMF director of the Fiscal Affairs Department, Victor Gasper said in Washington, adding that climate change “is the topic of the fiscal monitor this time”— the October 2019 edition of the fiscal monitor focuses on the design of fiscal policies for climate mitigation at the domestic and international levels to advise policymakers to follow prudent fiscal policies.

Priority considerations

Political will to quickly act while urgently putting in place a whole suite of public policy measures is a need to be taken up while recognising the culture and traditions of Zimbabwe.

  • Quicker structural reforms — will go a long way in fighting corruption; the abuse of public office for private gain. Among economic experts at these meetings, there was broad agreement on the economic benefits of structural reforms; they often carry short-term costs while most of the economic gains from reforms only materialise over the longer term.

It was against this background that high-ranking experts discussed the political ramifications a country might face from not swiftly implementing a structural reform agenda. IMF says its “research shows that a major broad-based reform push in the area of governance, trade, finance product and labour market could raise output by as much as 7% over six years, providing a big boost to jobs and economic growth at a time when the global economy is slowing down,” but was quick to raise for discussion, “ if it was possible to implement far-reaching reforms without paying a price at the ballot box.

The public can access information that answers this question in an IMF staff discussion paper on The Political Costs of Reforms: Fear of Reality that states, “The political economy of reform is, however, less settled for two reasons. First, reforms may generate gains only in the longer term while distributional effects may be sizable in the short term. Second, governments may lack the political capital needed to confront vocal interest groups, wherein politicians may hold back on reforms, fearing they will be penalised at the ballot box (IMF 2009, 2016, and 2019).

There is much to ponder here, as Zimbabwe undergoes austerity measures and is classed as a “fragile, low-income country.”

  • Faster resilience — a must in national budget allocations

In launching the IMF Sub-Saharan Africa Regional African Economic Outlook report, Abebe Aemro Selassie, director of the IMF African Department, laid out that, “policies we feel are needed to facilitate stronger growth.” He stated, “Cyclone Idai followed quickly by Cyclone Kenneth. So, we are trying to provide support to countries as they are being impacted by these shocks as quickly as we possibly can. So, that’s one way in which we are dealing with the somewhat uncertain climate. Right now, of course, we have a drought in southern Africa. We are trying to assess the impact of that in countries like Zimbabwe, Zambia and Mozambique and giving policy advice and support there.”

In the Fiscal Monitor, Gasper said it is important to realise that current pledges under the Paris Agreement are not enough. As concerns continue to mount over the impact of climate change, central banks are taking action in a range of areas within their mandates.

But is the Reserve Bank of Zimbabwe heeding the negative implications of Cyclones Idai, Kenneth and droughts?

Dealing with the impact will require prioritising fiscal policy measures, but as the IMF has emphasised, “While fiscal tools are first in line, they need to be complemented by financial policy tools such as financial regulation, financial governance, and policies to enhance financial infrastructure and monetary policy.”

Why so much IMF attention to this?

Kristalina Georgieva, IMF managing director, said, “The criticality of addressing climate change for financial stability, for making sure that we can have sustainable growth, is so very clear and proven today that no institution, no individual can step back from the responsibility to act. For the IMF, we always look at risks.

”This is now a category of risk that absolutely has to be front and centre in our work for two reasons: one, because of disaster risks to stability of countries; two, because of transitional risks.

”We have a duty of care to understand these risks, classify them, and most importantly, come up with policies to manage them.” In response, Philip Lane, member of the executive board of the European Central Bank, was emphatic and clarified that for a central bank to deliver on its core mandate it absolutely must be involved in resilience policies and delivering on inflation targets.

Georgieva went on to say there is no way of addressing the fundamentals of the economy without addressing climate implications, therefore IMF will be including it in its work.

It’s not only about predicting inflation, but serious monetary policy — every sector of the economy will be affected; it has to be at the core of central banking. Sabine Mauderer, member of the executive board of the Deutsche Bundesbank was quick to caution that, “ We have to bear in mind that we have a clear distinction between the mandates of central banking and policy-making.

Crystal clear is that central banks do have to deal with the risk of climate change. That is crystal clear. But, they cannot substitute climate policy. Climate policy has to be done quickly.

Central banks ought to integrate climate change and financial stability monitoring into banking supervision.” She asked that policymakers implement reforms that increase disclosure of individual and systemic risk because this information is desperately needed.

Herein lies a clear opportunity for Zimbabwe’s leaders to demonstrate leadership.

  • Accelerate Poverty Reduction — how this can be achieved in Africa was central to the meetings.

On October 17, 2019, the WBG introduced, “an ambitious new learning target, which aims to cut by 50% the global rate of ‘learning poverty’ by 2030. Learning poverty is defined as the percentage of 10-year-olds who cannot read and understand a simple story.”

How Zimbabwe’s 2020 budget allocation will stack up against these plans will soon unfold as its Minister of Finance is due to reveal his national budget mid-November.

There was a prevailing view among most economists about why the future of rural spaces was key in discussions on a better economy that overcomes the rural hurdles of distance, degradation and climate vulnerability to promote greater economic inclusion and resilience. Perspectives from the public and private sectors were brought to bear on the question of effective rural change. It was generally agreed among the experts present that the need for women’s empowerment to significantly make improvements in the rural space was a must. It was highlighted that farmer cooperatives and local organisations realising economies of scale are another factor of success from The Netherlands to Rwanda. Rural economies are ripe for innovations that deliver better results for people, Zimbabwe and the planet. Additionally, science and digital technology — including SMS and television — are key areas to accelerate this transformation.

Hastening poverty reduction and the cascading effects of an unaddressed, fast-deteriorating healthcare system deficiency should be examined by legislators as they prepare to formulate the 2020 national budgetary policies.

Georgieva talked about how improved gender parity would lead to better economic outcomes. She argued that women must fully participate in the economy on equal terms. On unpaid work, she was adamant the unequal distribution of unpaid work is not only unfair, it is also inefficient since you have high-skilled women doing unskilled work. She concluded by stressing that while political will is needed to take concrete steps, cultures take time to change. In response to a question on what men can do to help, Georgieva said that it is important that men recognise the historical injustice and that IMF is working to correct it.

A failure to heed — the IMF-WBG calls to act quickly — will have far-reaching, long-term consequences for generations to come.

Accelerating reforms, speeding resilience, and lowering inequality and poverty faster is key.

  • Pearl Matibe has geographic expertise on US foreign policy, think tank impact, strategy and public policy issues. You may follow her on Twitter: @PearlMatibe

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