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World Bank: Zimbabwe Country Assistance Evaluation
Southern African Regional Poverty Network (SARPN)
May 21, 2004

http://www.sarpn.org.za/documents/d0000887/index.php

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Summary
In the first decade after Independence in April 1980, Zimbabwe sought to promote development and reduce inequities through intensified economic controls and increased social expenditures. This resulted in social progress but at the expense of unsustainable fiscal deficits and low growth. Land distribution remained highly unequal. In 1991 the Government launched an Economic and Structural Adjustment Program (ESAP) to accelerate growth through better fiscal management and market liberalization. This largely failed because of external shocks and unsound policies. Social progress slowed, per capita incomes declined, and the number of people living in extreme poverty increased. AIDS now affects one-third of the adult population and life expectancy has fallen from 56 in 1990 to 40 in 2000.

The Bank’s strategy in the 1980s responded appropriately to poor economic management but did not provide clear direction to land reform. Lending was concentrated on investment loans for infrastructure. While analytical work appropriately focused on improving economic management, all five major Bank reports made no recommendations on land reform.

The Bank provided two structural adjustment credits (SACs) during 1991-96. While a number of important reforms were accomplished through these credits, Zimbabwe was never able to establish macroeconomic stability. Fiscal deficits averaged 8.5 percent per annum in 1991-99. One reason was the unwillingness of the highest political leadership to make critical adjustments. A second important reason was that financial liberalization and tax reduction were sequenced to come before rather than after reductions in expenditures. Financial liberalization and tax reductions turned out to be fiscally costly and led to a domestic debt trap. Rising interest payments squeezed public spending on social services; high real interest rates stifled private sector growth and employment generation, counteracting the positive effects of the SACs on economic liberalization and deregulation of investment.

While many analytical and advisory activities (AAAs) were completed in the 1990s, substantive analytical work on some key issues either was not undertaken or was not timely. The public expenditure review (PER) in end-1995 came too late to highlight sequencing issues in the Government’s fiscal program or to inform the design of the SACs. Also no substantive analytical work on poverty has been completed. Furthermore, land reform was addressed only sporadically and not treated as a priority area until late in 1998. While the Bank’s inability to finance land acquisition was a constraint to an effective dialogue and experimentation on approaches, the Bank could have undertaken AAA on alternative approaches, disseminated findings from elsewhere that only in exceptional cases are large farms more efficient than small farms, and pushed for the relaxation of rules for subdivision of land.

There were shortcomings in investment lending also. The Bank was unable to launch a lending program for agriculture, and gave insufficient attention to social safety nets. During 1998–2000, when there were clear warning signs that the Bank’s strategy was not working because of a lack of ownership from the political leadership, it continued to appraise projects and approve new projects, as well as negotiate a SAC III.

The outcomes of Bank assistance during 1980–2001 evaluated against country assistance strategies (CASs) and other relevant objectives are rated unsatisfactory, and institutional development impact as negligible. While the Bank’s program did help liberalize trade, reform agricultural marketing arrangements, deregulate domestic investment, and establish a fund to mitigate the social impact of adjustment, the assistance did not support macroeconomic stability, expenditure reform, and a reduction in poverty and inequality. Also, civil service reform did not improve efficiency nor contribute to fiscal sustainability, parastatal reform was disappointing, and structural reforms were poorly sequenced. In December 1997, the Bank disbursed the second tranche of SAC II based on assurances which were not met.

Bank actions, which largely determine Bank performance, are one contributor to the outcome and institutional development impact of the Bank’s assistance strategy. Outcomes are also determined by the Borrower’s performance and other factors. The Borrower showed little commitment to macroeconomic stability and poverty alleviation. It did not take steps on land policy that its own Land Reform Commission recommended. Instead the Government abandoned the rule of law and respect for property rights by forcibly acquiring land. Controversial and unexpected policy decisions by the Government in 1998-2000 (e.g., on civil service wage increases and land redistribution) make sustainability of outcomes unlikely.

The Zimbabwe experience provides four lessons. First, given the necessity of macroeconomic stability, especially achieving fiscal sustainability, the Bank should have undertaken a PER prior to 1995, should have been more forceful in ensuring that credible steps to achieve fiscal sustainability were incorporated in adjustment lending, and should have formed a judgment not only about the macroeconomic/fiscal targets, but also about the likelihood of their implementation. Second, the Bank should have given greater attention to reducing glaring inequalities and poverty by undertaking in-depth analytical work on poverty and more proactively addressing land reform before 1998. Third, the Bank should not have relied on commitments with technocrats in the absence of political consensus for reforms. Fourth, in the absence of ownership from the political leadership, the Bank should have insisted that conditions be fulfilled and not proceed to lend on the basis of promises. The Bank’s willingness to lend sent the wrong message to the client and to the partners.

Given the current situation, the Bank can do little to move forward the economic and social agenda. It cannot lend even for a narrowly defined social agenda; the Government has been in arrears to the Bank since May 2000. At the present juncture, the Bank should focus AAA on building a knowledge base in four critical areas:

• an assessment of poverty and inequality, and the impact of economic policies on these issues;
• an analysis of the political economy factors which have impeded reforms (e.g., parastatal reform) in the past;
• learning from pilots on land reform launched in other countries; and
• a public expenditure review focused on fiscal sustainability and the required rationalization and reallocation of public expenditures.

A resumption of normal Bank lending should be conditional on:

• credible and upfront measures to achieve macroeconomic stability;
• fundamental governance reforms; a pro-poor reallocation of expenditures;
• parastatal reforms; and the formulation and credible initial steps in the implementation of an action plan on land issues.
  

Gregory K. Ingram, Director-General, Operations Evaluation

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