Failure to safeguard property rights cripples agric sector: IMF
The government’s failure to safeguard property rights has crippled the agricultural sector, the International Monetary Fund (IMF) has said.
Zimbabwean farmers have been unable to access loans from banking institutions due to concerns over the 99-year leases, and this has hamstrung the sector which is a vital cog in the economy.
Financial institutions have baulked at giving farmers loans based on the 99-year leases which are not bankable despite government claims to the contrary.
In a wide-ranging interview, IMF representative to Zimbabwe Patrick Imam said property rights are pivotal to resuscitating the agricultural sector.
“Take land reforms. Investment in agriculture has been seriously hampered and the sector is not producing enough output to feed the country, despite Zimbabwe having been the regional food basket in the past. The fundamental problem we have is that the title system is broken,” Imam said.
“This explains why many analysts characterise the land in Zimbabwe as dead capital, as it cannot be collateralised. Because of that, banks are not willing to extend credit to farmers. As banks are not willing to lend, and to substitute for an unwilling banking system, the government introduced command agriculture to enable farmers to get direct inputs. While the new system introduced earlier this year to channel funds via banks is a step in the right direction, it is not leading to a huge investment in the sector, as most farmers still don’t feel secure about their property to invest in, say, an irrigation system.”
He said despite money being poured into the agricultural sector, the output remains low.
“The first best solution to revive the sector would be to tackle the most binding constraint, which is property rights. But contrary to what one often hears, when I speak to bankers and farmers, the unanimous view is that the 99-year lease is not yet bankable,” Imam said.
“In fact, most of the ongoing initiatives have not worked so far in significantly changing the agricultural landscape. Despite billions of dollars having been put into agriculture, the outturn has been disappointing.”
Imam said the country’s failure to clear its arrears with international financial institutions (IFIs) has impeded the Bretton Woods institutions’ capacity to assist Harare which has been ravaged by drought, resulting in nearly eight million people facing hunger.
“We are very mindful of the impending humanitarian crisis, and that over eight million people are expected to be food insecure. Zimbabwe, however, still has arrears towards multilateral development institutions, notably the World Bank and the African Development Bank and also the European Investment Bank. The IMF rules don’t permit us to provide financial support to any member country that has arrears to the other international financial institutions.
“Thus, before becoming eligible for financial support from the IMF, Zimbabwe will need to clear these arrears. In addition, Zimbabwe would also need to reach an understanding with its bilateral creditors over the clearance of their outstanding arrears,” Imam said.
“Only once the debt issue is cleared is the IMF in a position to provide a fully financed programme. If it wasn’t for the arrears situation, Zimbabwe could probably qualify for the Rapid Credit Facility, both because of the drought and potentially the coronavirus outbreak. This type of programme would provide emergency financial assistance and allow the Fund to disburse money very quickly. But this is not yet possible.”
The IMF, in its report which was published after its board meeting on the Article IV Consultation with Zimbabwe on Monday last week, painted a grim picture of the state of the country’s economy, projecting mere 0,8% growth this year.
This is much lower than government’s forecast of 3% growth. It also revealed that the country’s GDP had contracted by more than 8%.