Chinamasa pay-rise headache

06 Jul, 2018 - 00:07 0 Views
Chinamasa pay-rise headache Minister Patrick Chinamasa

eBusiness Weekly

Martin Kadzere
The Zimbabwean government says it is “worried” about treasury’s widening budget deficit after it raised civil servants salaries, but is hoping improvement in economic performance will help the country generate sufficient revenues to close the gap.

In May, the government increased civil servants salaries by 17 percent to avert potential job action by public-sector workers, which threatened to paralyse its operations.

The increase, which took effect from July 1, 2018, followed strikes by doctors and nurses in March and April who demanded for higher pay and better working conditions.

Teachers had also threatened to go on strike at the beginning of the school term in May.
The upwards adjustment, though still below civil servants’ demands for a 100 percent pay rise, will widen the 2018 budget deficit, initially projected at $672 million, or 4,5 percent of gross domestic product. Last year the deficit rose to $1,82 billion, 11 percent of GDP.

Zimbabwe is spending nearly 90 percent of fiscal revenues on state employees’ salaries, leaving it with little financial resources to invest in key infrastructure projects.

“It’s a cause for concern,” Finance and Economic Planning Minister Patrick Chinamasa told Business Weekly recently.

“Clearly, it will be difficult to fill in the gap, but we hope that given the rejuvenation in our economic fortunes that we are going to witness, I think that the revenue base will be able to broaden and we should be able to take care of that increase.”

Economy to accelerate faster
Chinamasa has already projected Zimbabwe’s economy is likely to grow faster than initially projected, largely driven by mining and agriculture. He said the economy would expand 6 percent in 2018, faster than previous forecast of 4,5percent.

The World Bank has in its latest forecast also revised upwards Zimbabwe’s gross domestic product to 2,7 percent from 1,8 percent it had projected in January this year.

Chinamasa said a number of investments, which could not take off largely due to concerns around indigenisation and empowerment laws under the administration of former president Robert Mugabe were now being implemented.

Investors were also warming up to Zimbabwe currently implementing economic reforms meant to boost economy, which contracted by 40 percent since 2000.

Rationale for pay rise
In the 2018 budget, Chinamasa pledged to curb government spending by retiring all civil servants aged over 65 and close several overseas diplomatic missions. Minister Chinamasa said while the increase would pile much pressure on the budget, civil servants deserved a pay rise given increasing cost of living. “I tried to rationalise it by saying that they have not had any increase in the past five years,” said Chinamasa.

“In a way I don’t be grudge them and in all honest, I am very grateful to the civil service for their maturity and their understanding that we are in dire economic situation.”

Analysts say the increase will doubtedly exacerbate the current asset price inflation, and creating further challenges on the market foreign currency pricing mechanism.

“The move comes on the background of an already weak domestic monetary framework that has, over the years, been compromised by unproductive monetary expansion emanating largely from unbudgeted government and related quasi-fiscal expenditures,” said Oxlink Capital managing director Brains Muchemwa.

Much Emma said although the consumer price inflation has remained largely under wraps on account of the Reserve Bank of Zimbabwe implicit subsidies being offered to producers and importers of basic commodities, further increases in broad money supply threaten the ability of the exporters to continue subsidize the economy.

“We should therefore expect real challenge for the policy makers to keep consumer prices under check going forward,” he said.

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