Govt salary delays: Indicator of worsening economic crisis

Source: Govt salary delays: Indicator of worsening economic crisis – The Zimbabwe Independent June 25, 2016

LAST week’s announcements by the Ministry of Finance to the effect that civil servants’ salaries for June will be delayed to as late as mid-July as well as the Zimbabwe Stock Exchange (ZSE) hitting a new low are key indicators of the worsening economic crisis.

By Kudzai Kuwaza

Last Friday, finance permanent secretary Willard Manungo wrote to the Public Service Commission proposing staggered salary payment for civil servants.

According to the proposal, the national army and the air force will be paid on June 27, followed by police and prison officers on June 30.

The education sector will be paid on July 7 followed by health workers and the rest of the civil service on July 14. Pensioners will get their dues on July 19.

This has angered civil servants, who have accused government of being disrespectful by not consulting them over the issue despite having met with them barely 48 hours before the announcement. Some government workers have even threatened to down tools.

The continued failure by government to pay its workers on time is evidence of the devastating effects of an imploding economy hard hit by a debilitating liquidity crunch, low capacity utilisation of less than 35%, company closures and massive job losses.

The job losses have resulted in a decline of government revenues, hence the failure to pay salaries on time.

At least 81 companies closed shop in the first quarter of 2016. This adds to the 4 610 companies that shut shop resulting in the loss of 55 443 jobs. Thousands more jobs were lost last year after a July 17 Supreme Court allowed employers to retrench workers on three months’ notice without paying a retrenchment package.

There seems to be no respite to the economic implosion with the current cash shortages wrecking further havoc on the market which could result in more company closures and job losses. So acute is the shortage that some banks have resorted to giving depositors as little as US$100 dollars a day.

The hemorrhaging of jobs and closure of companies has been keenly felt by the taxman who has failed to generate adequate revenue for government.

Tax collections, including Pay-as-You-Earn revenue, continue to plunge, according to a first quarter report of 2016 by the Zimbabwe Revenue Authority chairperson Willia Bonyongwe.

Bonyongwe noted in her report that companies owe Zimra US$692 million in income tax, up from US$578 million last year.

“This largely reflects the incapacity of most companies to pay, some of which may no longer be operational. In the short term, this tax head will remain under pressure and performance is not expected to improve all things remaining equal,” Bonyongwe said.

She said individual tax collected in the quarter amounted to US$167,43 million which fell short of the targeted US$196 million and a further reduction to the US$200,18 million collected during the same period last year.

Bonyongwe added that value-added tax on imports and customs duty both dropped by 1% to 12% and 9% respectively.

Corporate income tax contributed US$52, 55 million which was a miss on the targeted US$76 million.

The worsening crisis is caused mainly by a low productive base, according to economist and Buy Zimbabwe chairman, Oswell Binha.

“The failure to pay civil servants on time is due to low economic performance where productive sectors are not showing any signs of recovery,” Binha noted.

Binha added that it was also a result of government having “too many employees” creating an imbalance where expenditure exceeds output.

The ZSE has not been spared from the vagaries of the economy as investors continue to desert the local bourse.
Last week, the bourse suffered a seven year low with foreign sell-offs dominating trade at $122 418, compared with foreign inflows amounting to $67 441

At current levels, the lacklustre local bourse is now 59,22% lower than the peak of 233,18 points recorded in 2013 towards the end of the inclusive government whose tenure ended in the same year.

This according to Binha is an indication of “deep rooted uncertainty and lack of confidence in the economy”.

The fleeing of investors from the embattled ZSE is as a result of toxic policies such as indigenisation, which remains opaque and vague despite being signed into law by President Robert Mugabe in 2008.

That nearly 80 business delegations from various countries that include Russia, United States and United Kingdom who visited the country last year but failed to consumate deals pointed to the law as an obstacle shows just how poisonous the legislation have been has been to the country’s investment prospects.

Mugabe’s pronouncements at the burial of former health minister Felix Muchemwa at Heroes Acre on Sunday sounded a death knell on any hopes of significant investment.

“Some will say our policies are blocking funding. Americans and the British might want to pour lots of funds into the country if we don’t have policies like indigenisation and empowerment. Nonsense,” he said.

Mugabe’s remarks show his reluctance to revive the economy according to economist John Robertson.

“The comments by the President show that he does not care about anyone,” Robertson said.

He said cash shortages in the country have resulted in lower turnover in retail outlets means that government taxes “which were bad enough to start with are getting worse”.