PHILLIMON MHLANGA
Zimbabwe’s faltering economy could suffer serious fresh shocks after government was this week forced to bloat its already unsustainable wage bill following public workers threats to down tools.
The restive workers are itching to pour into the streets to push for higher salary review.
The government was this week forced to award ZWL$300m cushioning allowances into the pockets of government employees, who are in a tense mood.
The government has more than 500,000 strong workforce on its books.
Their productivity and commitment levels, however, is a subject of ongoing concern.
The wage pressure is likely to have adverse effects, and expected to trigger huge supplementary budget this year, economists warned.
Last week, President Emmerson Mnangagwa’s administration proposed to inflate its wage bill by 100%, in a move that would result in the least paid worker taking home about ZWL$2 000 a month from about ZWL$1 000, creating an illusion of runaway personnel costs.
Civil servants, however, rejected the offer saying they want more than 100%, threatening fiscal stability.
Workers are arguing that current salaries and wages are barely enough to keep body and soul together and cite exorbitant utility bills as pushing the cost of living through the roof.
Landlords are also demanding an arm and a leg in rentals, not to mention the taxing levies, fees and teachers’ incentives that parents must pay to keep their children at school.
While the Poverty Datum Line, which tracks the general trend in the cost of living, is estimated at ZWL$5, 000, not many workers are taking home a third of that.
What this basically means is that most families are sinking deeper into debt. It also means that those with no other means to bridge the deficit have to forego some basic necessities.
The wage bill increase is expected to hit the national budget thus endangering critical social services. Several economists told Business Times this week that raising public wages and salaries to excessively high rate would exert inflationary pressure on the economy.
“This [increase in wages] will be beyond what has been provided in the budget for 2020,” economist John Robertson told Business Times yesterday.
“This might mean that Finance and Economic Development Minister Mthuli Ncube will be forced to propose a huge supplementary budget half way through the year.
High government expenditure might also force government to increase taxes to fund the huge bill.
Apart from that the exchange rate on the black market might go up because of this as well as prices of goods and services spurring inflation.”
Another economist, Brains Muchemwa, concurred saying he expected a supplementary budget of more than 100% of the 2020 National Budget.
“It depends on the source of finances. While the major issues that will drive a supplementary budget relates to subsidies such as grain, fuel and other targeted subsidies, the social protection scheme, wages increases and cushioning allowances by government will definitely result in huge supplementary budget,” Muchemwa said.
Ncube budgeted ZWL$63.6bn for 2020. But, Muchemwa expects a ZWL$127.2m in supplemental budget. Normally, when public workers are awarded huge wage increases, businesses raise the prices of their goods and services, thereby stimulating inflation.
As a result, economists expect the government to come up with a huge supplemental budget to cover for this.
The increase in government expenditure will also necessitate increased borrowings and thereby increasing interest rates and crowding out the private sector from credit.
Increased government borrowing from the domestic market will pose a major risk to public debt sustainability and therefore not a feasible option, the analysts said.
Expectations are quite high among the workers who are hoping for the best this year after writing-off the past year due to the harsh effects of record-breaking economic decay.
Employees across the board are failing to meet expectations, giving rise to discontent of unimaginable proportions among the aggrieved workers, something which might dampen optimism in the economy, if not handled properly.
Although the increased wage bill stimulates domestic demand due to increased disposable income, the bloated government wage bill will have a negative impact on sustainability of the country’s growth trajectory.
It tends to crowd out other important public expenditure needs essential for growth and overall socio-economic development.
Wage increases can widen the budget deficit, if not accompanied by tax revenue growth. It is for this reason that both domestic and foreign financial markets take keen interest in the size of the wage bill as a key indicator of a country’s fiscal health.
Employment costs continue to dominate Zimbabwe’s public expenditure despite promises of strict adherence to reduce public service wage bill.
Government employees’ costs absorb more than 90% of tax revenue, leaving less than 10% for the critical infrastructure development.
Most countries in the developing economies spend about 30% of total tax revenue on government workers’ wages.
In 2010, the government was directing 40% of tax revenues towards government workers’ wages and salaries.
This is becoming a vexing challenge to Treasury and a downsize fiscal risk expected to deepen national debt problem and slow down the rate of economic recovery.
Finance and Economic Development Minister, Mthuli Ncube, recently said he was in favour of boosting government workers’ wages and salaries to restore living standards and create consumer demand.
Consequently, secretary for Finance and Economic Development, George Guvamatanga, this week confirmed that the cushioning allowances for civil servants were released to individual banks.
