VZCZCXRO5309
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #1091/01 3401318
ZNR UUUUU ZZH
P 061318Z DEC 07
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC PRIORITY 2210
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHUJA/AMEMBASSY ABUJA 1785
RUEHAR/AMEMBASSY ACCRA 1676
RUEHDS/AMEMBASSY ADDIS ABABA 1807
RUEHBY/AMEMBASSY CANBERRA 1084
RUEHDK/AMEMBASSY DAKAR 1432
RUEHKM/AMEMBASSY KAMPALA 1863
RUEHNR/AMEMBASSY NAIROBI 4291
RUEHGV/USMISSION GENEVA 0934
RHEHAAA/NSC WASHDC
RHMFISS/JOINT STAFF WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHDC//DHO-7//
RUCPDOC/DEPT OF COMMERCE WASHDC
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK//DOOC/ECMO/CC/DAO/DOB/DOI//
RUEPGBA/CDR USEUCOM INTEL VAIHINGEN GE//ECJ23-CH/ECJ5M//

UNCLAS SECTION 01 OF 03 HARARE 001091 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
AF/S FOR S. HILL 
NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN 
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN 
TREASURY FOR J. RALYEA AND T.RAND 
COMMERCE FOR BECKY ERKUL 
ADDIS ABABA FOR USAU 
ADDIS ABABA FOR ACSS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV ZI
SUBJECT: WORLD BANK MISSION DEPARTS PESSIMISTIC ABOUT 
ECONOMIC RECOVERY 
 
REF: 2006 HARARE 0493 
 
------- 
Summary 
------- 
 
¶1. (SBU) A World Bank mission which visited Harare November 
22-30 reported skyrocketing hyperinflation, a shrinking tax 
revenue base, and out-of-control public spending that only 
comprehensive, mutually reinforcing policy reforms could 
begin to reverse.  The GOZ, however, is about to announce a 
one-year Stabilization and Short-Term Recovery Program that 
skirts key reform measures.  In the meantime, economic policy 
players undermine each other with contradictory solutions. 
Nonetheless, the GOZ provided the mission with much better 
access to data than in the past, and agreed to a review by 
the World Bank of four major public-finance gobbling 
parastatals.  The Bank agreed to assist the Central 
Statistical Office in a major poverty survey.  Thanks to the 
safety valves of dynamic parallel market activity, emigration 
and a strong flow of remittances, the World Bank officials 
indicated some resilience in the ailing economy.  While we 
also don't foresee imminent economic collapse, the pace of 
impoverishment is clearly quickening in Zimbabwe as policy 
makers turn their backs on real reform options.  End Summary. 
 
--------------------------------------------- ---------- 
Dire Economic Indicators, Yet Optimistic Recovery Plans 
--------------------------------------------- ---------- 
 
¶2. (SBU) The primary purpose of the World Bank mission, which 
came to Zimbabwe at the request of the GOZ, was to update its 
knowledge of the economy.  On November 29, mission chief and 
senior economist Naoko Kojo reported the mission's findings 
to diplomats: skyrocketing inflation, controlled prices, and 
scantly available goods.  In public finance, the tax revenue 
base is shrinking in real terms due to price controls, the 
economy is rapidly becoming informal, and the GOZ has a 
severe cash-flow management problem.  The Reserve Bank of 
Zimbabwe (RBZ) is financing its quasi-fiscal activity by 
increasing the money supply, much of which is flowing to 
parastatals and to the agricultural sector in the form of 
subsidies. Kojo reported that the Cabinet had approved a 
one-year Stabilization and Short-Term Recovery Program that 
would be introduced in January 2008, followed a year later by 
the 5-year Zimbabwe Economic Development Strategy (ZEDS). 
 
------------------------------------- 
Advice on Budget/Cash Flow Management 
------------------------------------- 
 
¶3. (SBU) At the GOZ's request, the mission also advised the 
Finance Ministry on budget formulation and cash flow 
management.  Kojo said World Bank consultant (and former 
Secretary of the Treasury and Vice-Minister of Economy of 
 
SIPDIS 
Argentina) Daniel Artana advised ministry officials not to 
index expenditure to inflation, as expenditure would continue 
to rise much faster than tax revenue in a contracting 
economy.  He also advised the GOZ to produce a cash budget, 
i.e. expend no more than you receive in tax revenue at any 
given time to contain inflation.  He cautioned officials that 
there was no "best practice" in budget management under 
hyperinflation and instructed them to make economic 
stabilization their highest priority. 
 
 
HARARE 00001091  002 OF 003 
 
 
--------------------------------------------- ------------ 
Green Light on Parastatal Review; Help With Income Survey 
--------------------------------------------- ------------ 
 
¶4. (SBU) Pointing out that parastatal financing was a major 
contributor to Zimbabwe's macroeconomic instability, Kojo 
said the Bank had reached an agreement with the GOZ to carry 
out an initial review of public resource flows to four of 
Zimbabwe's largest parastatals: the Zimbabwe National Water 
Authority (ZINWA), the Zimbabwe Electricity Supply Authority 
(ZESA), the National Oil Company of Zimbabwe (NOCZIM), and 
the Grain Marketing Board (GMB).  For a start, accompanied by 
representatives of the Finance and Economic Development 
Ministries, the mission had met with the parent ministries of 
each of the parastatals as well as with their auditors.  On a 
positive note, Kojo said that the ministries and parastatals 
had given the mission "very good" access to information, 
though the data itself would be difficult to analyze. 
 
¶5. (SBU) World Bank Acting Country Manager Mungai Lenneiye 
announced that the Bank had also agreed to assist the Central 
Statistical Office (CSO) in preparing an income, consumption 
and expenditure study.  Its purpose was to help the GOZ 
provide social protection once it began to stabilize the 
economy.  The World Bank will also seek Low-Income Countries 
Under Stress (LICUS) funds for the CSO, which needs 
significant capacity development, according to team member 
Kathleen Beegle.  Beegle also commented on the poor state of 
coordination and cooperation between the CSO and the Ministry 
of Public Service. 
 
-------------------------- 
Skirting the Major Reforms 
-------------------------- 
 
¶6. (SBU) Kojo criticized the GOZ's Stabilization Program for 
being too broad and for failing to differentiate between 
short-term stabilization measures and development objectives. 
 She said it was impossible to undertake development in the 
current hyperinflationary environment as all planning had 
become short term in the face of uncertainty.  She found the 
Stabilization Program little different from the failed 
National Economic Development Priority Programme (NEDPP) of 
April 2006 (reftel): the GOZ was attempting to pick and 
choose acceptable structural reform measures (parastatal 
reform, civil service reform, introduction of a social 
contract) without undertaking fundamental macroeconomic 
stabilization measures. 
 
¶7. (SBU) Lenneiye called "safety net" discussions meaningless 
in the absence of stabilization, which he felt the GOZ was 
intentionally avoiding.  He said the three economic policy 
players were undermining each other and failing to deliver 
comprehensive, mutually reinforcing policies: the RBZ keeps 
pumping out money in stopgap fashion; the Finance Ministry 
was about to deliver a fantasy budget; and the Economic 
Development Ministry has no buy-in for its stabilization 
plan. Against this background, Kojo and Lenneiye predicted 
continued economic deterioration. 
 
------------------------------- 
Low-Level World Bank Engagement 
------------------------------- 
 
¶8. (SBU) The World Bank mission chief said that the Bank's 
 
HARARE 00001091  003 OF 003 
 
 
envisaged low-level analytical work would, at some date, feed 
into a Country Economic Memorandum (CEM), but, for now, there 
was too much uncertainty for the Bank to commit to a CEM. 
Furthermore, as a non-active member country Zimbabwe did not 
qualify for significant World Bank resources, and the GOZ, 
for its part, was unwilling to take the necessary ownership 
of a CEM.  For these reasons the Bank was relying on a Multi 
Donor Trust Fund (MDTF) for analytical work, supported by 
US$1 million from the World Bank and donor contributions, 
which Lenneiye hoped would soon be approved. 
 
¶9. (SBU) Lenneiye expected a MDTF project manager to start 
work in Harare in January, at which time the MDTF policy 
committee would begin to meet to determine analytical 
priorities.  Already, technical working groups in the areas 
of social protection, economic development (inclusive of the 
macro-economy and the private sector), agriculture, and 
governance are meeting to identify and prioritize required 
analysis for the policy committee's approval.  Note:  Donors 
have begun to make pledges.  DFID, CIDA, and SIDA plan to 
make immediate contributions of US$500,000 each, with 
possible top-off funding.  In addition, the South Africans, 
Dutch, Germans, Norwegians, and Danes have expressed interest 
in contributing financial resources to the MDTF, but amounts 
are not yet known.  End Note. 
 
----------------------------------- 
Is There An Economic Tipping Point? 
----------------------------------- 
 
¶10. (SBU) Asked by the Ambassador in a private meeting on 
November 30 how much longer the economy could sustain itself, 
Kojo and Lenneiye pointed out various factors that will 
continue to keep the economy afloat: rapid informalization 
(and top ZANU-PF officials' deep personal involvement in the 
informal economy), the economy's effective dollarization, the 
strong inflow of remittances from the diaspora, and 
Zimbabwe's proximity to South Africa. 
 
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Comment 
------- 
 
¶11. (SBU) While we don't foresee the economy grinding to a 
halt under its own fiscal profligacy and hyperinflation, 
thanks to the adoption of innumerable coping strategies by 
individuals and businesses alike, we do see poverty levels 
rising inexorably as the formal economy shrinks.  Emigration, 
especially by more skilled, formally employed, tax-paying 
Zimbabweans, will also accelerate as local living conditions 
deteriorate further, and it will contribute to the quickening 
overall pace of decline.  We share the World Bank mission's 
pessimism about the prospects for stabilization and recovery 
in 2008 as long as the GOZ continues to cherry pick reform 
measures in a piecemeal and uncoordinated fashion.  We recall 
economic commentator John Robertson laconically telling a 
business group a year ago that for sure 2006 would go down in 
the books as a better year for the economy than the 
approaching 2007.  As things are headed now, it appears that 
2007 will outperform 2008 as well. 
MCGEE