PRESIDENT Robert Mugabe’s promise to match the civil service minimum wage with the country’s poverty datum line (PDL) is yet another populist statement which, if implemented, has catastrophic effects on the economy, analysts have warned.
Zimbabwe’s PDL stands at US$489 as of August 2015 while the least paid civil servant earns about US$375 per month.
“It is the desire of government that salaries progressively match the poverty datum line,” Mugabe told thousands of people gathered at the country’s 36th Independence Day celebrations in the capital on Monday, spelling doom for the fiscus. Currently, the country is reeling from tight fiscal space amid growing competing demands against a backdrop of shrinking revenues.
Government has been forced to delay civil service salary payments every month in light of cash challenges while war veterans and retired government workers are owed millions in benefits.
Ironically, Mugabe in the same speech admitted to the prevailing economic distress, which has seen government failing to pay civil service salaries and bonuses on time.
“Government apologises for the late disbursement of salaries, bonuses and monthly payments to pensioners, but be rest assured government is working flat out to improve the situation,” Mugabe said.
Zimbabwe has perennially revised its annual budgets on account of revenue underperformance as companies continue to underperform. Finance minister Patrick Chinamasa’s paltry and virtually standstill US$4 billion 2016 budget, reflects Zimbabwe’s mounting economic problems characterised by company closures and resultant revenue shrinkage.
A projected deficit of US$150 million will be funded from borrowings on the domestic market. In the 2015 mid-term fiscal policy statement, Chinamsa revised downwards revenue collections from US$3,99 billion to US$3,6 billion.
The latest Zimbabwe Revenue Authority (Zimra)’s annual revenue performance update for the year ended December 31 2015 shows companies and individuals are struggling to pay outstanding tax liabilities to government and are sinking deeper in arrears.
Zimbabwean companies are feeling the pinch of economic challenges such as a negative foreign investor perception and tight liquidity conditions that have forced some players out of business with those remaining either struggling to stay afloat or unable to meet their tax obligations.
Industry distress, which forced Chinamasa to revise economic growth projections from 3,2% to 1,5% and revenue collection targets from US$3,76 billion to US$3,46 billion in 2015, have also seen Zimra missing its annual tax collection targets for 2015 by US$220 million, falling 3% below 2014 figures at US$3,5 billion, an indication there is no fiscal space.
According to the annual tax report, the amount owed to government by the tax paying community, rose by close to US$600 million to US$1,97 billion in the 12 months under review due to growing distress among tax payers.
“This does not reflect inability to collect by Zimra which has been engaging the debtors. Instead, the rise in this figure reveals the level of distress within the tax paying community,” Zimra board chair Willia Bonyongwe said in the report.
According to government, 4 610 companies closed down between 2011 and 2014, resulting in the loss of 55 443 jobs due to a myriad of operational and macro-economic challenges including lack of access to affordable capital, poor infrastructure and erratic and costly supply of utilities.
A July 17 Supreme Court ruling, which allowed employers to dismiss workers on three months’ notice, has also resulted in the loss of more than 30 000 jobs across all sectors of the economy, according to trade unions.
Zimbabwe National Chamber of Commerce (ZNCC) CE Takunda Mugaga said Mugabe’s move would pile more pressure to the fiscus and perhaps speed up economic demise.
“How can one sustain such commitment when you are running a chronic budget deficit?,” said Mugaga, adding other economic factors such as the underperformance of agriculture and poor commodity prices militate against further revenue growth on the part of government.
“Given the current drought effects on agriculture as well as tumbling commodity prices on mining, it will be suicidal to raise the wage levels in the public sector given that these two major ‘cylinders’ which traditionally contributed to government revenue will be under stress,” said Mugaga.
He said pushing for a civil service salary increase could also mark the genesis of a new round of showdown with the IMF on our Staff Monitored Programme after minister Chinamasa promised to cut the wage bill to an average of 40% of aggregate expenditure.
Mugaga said allocating more funds for recurrent consumptive expenditure will further crowd out capital and social spending.
“It will continue promoting a non-capital expenditure which therefore means expecting even much worse deterioration of social services be it in health, road networks, infrastructure and education,” he said.
Mugaga said an imminent deepening of the current account deficit as it is to be complemented by the fiscal deficit will translate to a worsening liquidity crunch. Zimbabwe registered a US$3,3 billion trade deficit in 2015, which accounts for 20% of its GDP. The country’s liquidity crunch has manifested in the form of cash shortages at banks with some institutions reducing the daily automated teller machine (ATM) withdrawal limits from the stipulated US$3 000 to as little to US$500. Some banks have in some instances run out of cash.
“In other words, any attempt to increase civil service salaries will lead to worsening liquidity challenges,” he added.
Former economic planning minister Tapiwa Mashakada said Mugabe’s move, though wishful, could sink the economy into deeper turmoil.
“There is no such thing like increasing civil service wages in line with the PDL because the cash-strapped government does not have the fiscal space to do so,” said Mashakada, adding government is struggling to pay civil servants on time let alone their bonuses.
“What about payment of transfers to war veterans and pensioners which are in arrears? The money is simply not there and the budget is not performing. The President’s speech talks about a pie in the sky and should therefore be dismissed as mere political grand standing,” he said.