Chambati death triggers economic jitters.

Despite excellent prices for tobacco, one of Zimbabwe's main export earners, the country seems to be heading towards a financial crisis. This has been exacerbated by the death of the Finance Minister, Mr Chambati, and the suspension of crucial loans by the IMF.

Those with a superstitious mind can be forgiven for believing that Zimbabwe's Finance Ministry casts an evil spell on anyone who occupies the chair as Minister. The country's Finance Minister, Mr Ariston Chambati, whose appointment was loudly hailed by the business community, died on October 7, having been severely ill for the past three months. His predecessor, Mr Bernard Chidzero also fell ill while in office and was eventually unable to continue in his duties.

Mr Chambati's death leaves the Government without a strong financial leader at a crucial period.

Once show-cased as a shining success story of structural adjustment programmes in Africa, Zimbabwe's economic performance has now tarnished to the extent that the International Monetary Fund (IMF) has suspended key loans.

The IMF has suspended balance of payments support, estimated to be worth $100m, until President Robert Mugabe's Government reduces expenditure and privatises large, loss-making state owned corporations.

Unless Zimbabwe successfully cuts its spending the World Bank and other Western donors may follow the IMF's lead and withhold future financial support. Further painful measures demanded include the privatisation of several state owned corporations and the reduction of inflation, currently at an annual 24%, and sky-high interest rates, which now start at 35%.

The death of Zimbabwe's economic helmsman has increased the IMF's worry about the country's economic performance. The institution has placed Zimbabwe on a "shadow programme" under which the Government's economic performance will be closely scrutinised until March 31, 1996.

The IMF suspended Zimbabwe's balance of payments support loans because of its dissatisfaction with the Government's continued high expenditure. Last year's budget forecast the deficit at Z$2.4 bn ($282m) but unchecked spending pushed the deficit up three times that amount to Z$7 billion ($823m). The over-spending ballooned Zimbabwe's deficit up from the target of 6.9% of GDP to an astronomical 13.4% this year. Zimbabwe's GDP is estimated at $5bn.

Mr Chambati's 1995/96 budget, presented to Parliament at the end of July, plans to cut the deficit in half to 6.7% of GDP. But this 18% cut off the budget in real terms is viewed with suspicion by the IMF because it includes a clever shifting of accounting goalposts.

Although the Finance Minister vowed that all Ministries would be pegged to their budgets, it is feared the Government's profligate spending will continue unabated. The IMF action indicates the organisation is fed up with promises and projections. Now it wants to see action.

To finance the budget deficit the Zimbabwe Government has had to borrow heavily on the local market, taking up an estimated 60% of available capital. The shortage of capital has pushed interest rates up to 35% annually, which is seen as the most serious constraint on new investment, both domestic and foreign.

Zimbabwean officials have down-played the severity of the IMF suspension, despite the fact that the current drought has already given the economy a hard knock. Economic growth this year is expected to be less than 1% due to the harsh effects of the bad rainy season.

Retail sales in Zimbabwe are down significantly. Exports to Zimbabwe's biggest trading partner, South Africa, are also down and are unlikely to improve until a new trade agreement can be hammered out with the Mandela Government. South Africa's punitive 90% duty on Zimbabwean goods has damaged many Zimbabwean industries, particularly the hard hit textile and finished garment sectors. Although the South African Government promised in September to renew a preferential trade agreement with Zimbabwe, it has met with unexpectedly angry opposition from South African trade unions and industry. This is somewhat surprising as Zimbabwean textile imports amount to a mere 2% of the total South African market.

The IMF suspension means the Zimbabwe Government will have to draw from its coffers to pay for its imports in foreign currency. This is not disastrous because Zimbabwe's current balance of payments is relatively healthy.

"We have five and a half months supply of foreign currency as import cover," said the Government's senior Secretary for Finance, Mr Charles Kuwaza. "Yes, this will decline, but with our tobacco and mining sector doing well, we will be able to cope. We must for the time being be prepared to ride over the turbulent waves." Despite the current drought, Zimbabwe's tobacco farmers are having an excellent year, with the harvest of 166,700 tonnes of the nicotine weed selling at good prices averaging at $2.13 per kg. It is estimated the tobacco sales will earn Zimbabwe Z$4.5bn ($523m), nearly 25% of the country's total foreign currency earnings. Buoyant international prices for Zimbabwe's minerals like gold, chrome, platinum, and nickel are also bringing in good foreign currency earnings.

The World Bank's resident economist in Zimbabwe, Mr Kapil Kapoor, agreed that the IMF move would not throw Zimbabwe into an economic crisis. "It is not so serious, but it should prompt the Government to keep to its budget pledges to reduce spending," he said.

The Government is sending a delegation to Washington to re-negotiate with the IMF and they hope to renew the IMF programme in 1996.