Winners and losers of structural adjustments in Zimbabwe

The International Monetary Fund (IMF) and World Bank structural adjustment programmes to help developing countries restore their balance of payments has greatly influenced the economic set up of many countries and Zimbabwe is no exception. The structural process mainly involves deregulation of the economy, liberalization, export-led growth and the efficiency of free markets. In short it is the opening up of developing countries economies which are believed to be lagging behind due to strict trade regulations. For 25 years (1965-1990) Zimbabwe s economy was revolving around the import substitution ideologies. The respective benefits did not accrue as the growth rate was not impressive coupled with low investment, low savings, high inflation and low employment by the end of the eighties decade. Zimbabwe began to face foreign-exchange shortages, partly as a result of declining world prices for its major agricultural exports, chiefly tobacco and cotton, and partly as a result of government s determination to repay debts and reduce its debt service ratio. High levels of trade restrictions had seriously discouraged exports and their reductions were expected to result in improved trade performance in the region. Faced with such economic difficulties Zimbabwe finally implemented the structural adjustment programme beginning in 1991. The programme was planned to run for five years, 1991-1995. In chapter 2 we outline the structural adjustment plan designed for the programme to follow suit. Part of the plan was to meet economic targets for example, reducing budget deficit from about 10% to 5% of GDP and a rise in investment of 25% of GDP by 1995 and the establishment of a social fund to cater for the vulnerable groups. Chapter 3 contrasts the targeted plans with what took place. For instance the programme was targeted to achieve a growth rate of 5% a year to 1995. Surprisingly the actual outcome was an average growth rate of about 1,1% through out ESAP period with very low negative growth rate experienced in1992 because of drought. Graphs are mainly used in this chapter to show clearly the discrepancies of economic targets and outcomes. The effects of the reform program during the early years were severely distorted by devastating drought in 1992. The reason behind liberalization lies behind the theory of comparative advantage. According to this theory trade enables a more efficient use of an economy s resources by enabling imports of goods and services that could otherwise only be produced at home at higher resource costs. The paper uses the classical standard trade model to explain the winners and losers of structural reform. We further modified the model to incorporate the income differences in Zimbabwe just like any other developing country. The modified standard trade model reveals that economic liberalization benefits the rich and strains the poor people s budget. Overall the modified model predicts the widening up of incomes between the rich and the poor. Also unemployment, low growth rates, poverty, political instability and corruption are the most visible outcome of the reform process despite the little economic success. All in the entire shift to ESAP brought with it years of economic hardships and the program itself was a failure. Among the recommendations it is advisable that all interest groups be involved in decision making of any suggested reforms. To restore business confidence there is need for good governance, one that is committed, transparent and accountable. Maybe if some form of punishment is involved in any reform failure policy makers. The most probable overriding problem is the political structure in Zimbabwe. No government that had achieved state power after liberation war could have survived for long without satisfying some of the expectations of the Zimbabweans