Zim’s delicate financial position

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GOVERNMENT appears to have buckled under pressure when it announced that it was effecting a salary increment for restless civil servants soon.

— Econometer Global Capital.

The lowest-paid government employee will now receive ZW$1 023 but the Apex Council, a union representing civil servants, is rejecting this offer.

The council argues that the offer does not meet the stated position of the workers, which is pegged at ZW$4 750 for the least-paid civil servants.

Before the new proposed minimum salary, the least paid government employee was paid ZW$582.

Latest figures from the Zimbabwe Revenue Authority show that while revenues for the first half ending June exceeded targets on both gross and net positions, going forward, maintaining this would be difficult given the current state of the manufacturing sector, mining and agriculture.

The recent issuance of Treasury Bills to fund undisclosed government programmes will not only mop up excess liquidity in the market but is gradually driving the stock of the domestic debt. This has had a double-edged effect on the private sector which will be crowded out.

Zimbabwe faces deep macroeconomic imbalances following the introduction of the mono-currency which ended dollarisation which was introduced in 2009.

After adopting the multi-currency system which was mainly dominated by the United States dollar, fiscal deficits increased substantially during 2016-2018, financed by the issuance of quasi-currency instruments nominally at par to the US dollar and the continued accumulation of external arrears.

A fragile equilibrium was maintained through exchange controls and other restrictions on access to foreign exchange, providing a deep distortion for economic activity.

By nearly doubling the minimum salary, government will be shooting itself in the foot.

As we predicted in our analysis after the Mid-Term Fiscal Review and Supplementary Budget, Treasury’s fiscal consolidation thrust will effectively go off the rails as domestic expenditure balloons.

In the final analysis, one can conclude that Treasury’s fiscal surplus is not sustainable in the short to medium-term.

It is just under three years after Zimbabwe had deflation, the economy may be sliding back to hyperinflation which will be driven by money supply growth and rising fuel prices.

On Monday the price of fuel hit the ZW$10-per litre mark as it continues to track foreign exchange movements. While it is still below US$1,40 per litre, the increases are already piling inflationary pressure on the economy.

Finance minister Mthuli Ncube has few options to quicken economic growth. Firstly, he should consider incentivising low-hanging fruits like tourism which are all part of the real sector.

Tourism players should enjoy relaxed exchange control measures to ensure that they can also re-invest into their business to maintain its attractiveness.

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