Government has dug a deep financial hole after it agreed to pay an unbudgeted for $180 million in bonuses to the restive civil service, with analysts warning the move signalled the country’s unwillingness to undertake fiscal reforms.
Source: Broke govt sinks reforms – NewsDay Zimbabwe March 8, 2017
BY NDAMU SANDU
On Monday, government buckled under pressure and resolved to pay 2016 bonuses to the civil servants and avert a brewing industrial action. Finance minister Patrick Chinamasa said Treasury would look for the funds.
The move comes at a time when government has been charming the international community with promises of reforms to get lines of credit required to reboot the economy.
Analysts told NewsDay the payment of bonuses was driven by populism ahead of the 2018 elections.
“It’s a reflection of both fiscal indiscipline and desperation especially with an election looming. Government is quite vulnerable,” economist, Godfrey Kanyenze said.
“It means you have to find money somewhere and that somewhere is difficult to figure out.”
Government has been borrowing from the domestic market to finance the budget deficit, thereby crowding out the private sector.
In his 2017 National Budget, Finance minister Patrick Chinamasa said government would focus on containing the growth in domestic debt in order to ensure fiscal sustainability, as well as providing fiscal space for capital expenditure.
As at October 31 2016, domestic debt stood at $3,7 billion constituting 26% of gross domestic product.
Kanyenze said the leadership was “living large and you can’t expect civil servants to be cowed and expect peanuts”.
He said what was uppermost on government’s to-do list “is power and they don’t mind what happens to the economy”.
“We are digging a hole to fill another hole. But there are so many holes around and we are not sure which one to fill first,” he said.
In its December country report, the International Monetary Fund (IMF) said Zimbabwe’s settlement of its arrears was a step in the right direction to cooperate with the international community, but needs to be followed by reforms that address the country’s structural imbalances.
The report came after Zimbabwe had settled its $107,9 million arrears under the Poverty Reduction Growth Trust.
IMF said Zimbabwe has to resolve its arrears to multilateral creditors (including the African Development Bank, the World Bank, and other multilateral institutions), bilateral official creditors, and external private creditors if it was to access financing from the Fund.
It said Zimbabwe has to implement strong fiscal adjustment and structural reforms to restore fiscal and debt sustainability and foster private sector development.
Former Finance minister, Tendai Biti said civil servants do not need to make threats to get their dues.
“I speak from experience; I used to pay salaries and bonuses when we were coming from a very low base. It was because of management, eating what you have gathered,” Biti said.
A banker told NewsDay that payment of the unbudgeted-for bonuses showed that the “chickens are coming home to roost”.
“To me this is money printing clear and simple. Right now dollars are disappearing and soon we will have the bond notes and with nothing on the shop shelves,” he said.
Recurrent expenditure, especially salaries, has been gobbling more than 80% of revenue generated by government and is projected to have reached 22% of gross domestic product in 2016. This has led to rising calls for government to cut the coat according to the size of the cloth to narrow the fiscal deficit.