via Biti predicts Zim dollar return fears – The Zimbabwe Independent April 25, 2014 by Taurai Mangudhla
THE ZIMBABWEAN government will be forced to reintroduce the Zimbabwe dollar as a desperate attempt to expunge growing domestic debt and manage its wage bill, former finance minister Tendai Biti says.
Biti said government has an internal debt crisis as it owes in excess of US$600 million to local companies and has used force to flood the market with government paper in the form of bonds, crowding out private players.
He said the Robert Mugabe-led government also made a somewhat populist promise to award a US$54 salary increase for civil servants which will see the least paid government worker earn US$375 per month, below the poverty datum line which stands around US$510.
“My real fear is they will decide to bring back the Zimbabwean dollar to monetise their arrears and the revenue gap,” he said, in an interview, adding “return of the Zimbabwe dollar is not a question of if, but when”.
Biti said reintroducing the Zimbabwe dollar and increasing civil servants salaries will result in economic stagnation for 15 years.
“When the Zimbabwe dollar returns, it means accelerating both the political and economic crisis and we will be back to the 2008 era where companies are just closing down,” he said.
Biti’s ominous warning comes as media reports say Mugabe’s government is weighing the reintroduction of the national currency as it struggles to meet its monthly wage bill.
The reports say three members of Mugabe’s Zanu PF decision-making body said revival of the local currency would allow government to print money.
Fears of an imminent return of the Zimbabwe dollar gripped the market soon after formation of Mugabe’s government last year, but Finance minister Patrick Chinamasa assured the nation a local currency would only be introduced at an ideal time.
Biti said the economy is already in dire straits as shown by stagnation, huge capital and current account deficits as well as deindustrialisation.
“A combination of these factors means Zimbabwe is entering a dangerous cycle which will last up to 15 years,” he said.
Biti said if unresolved, the situation will result in an economic crisis that will devalue the economic and political gains of the country by as much as 60 years as infrastructure will continue crumbling and skills leave the country.
“There is a danger we will be worse off than we were in 1950,” Biti said.
Earlier this month, Ministry of Finance permanent secretary Willard Manungo said government will fulfill its promise to increase civil servants’ salaries.
Biti said the decision, estimated to increase the wage bill by US$50 million annually at a time revenues are dwindling, will worsen the current economic crisis.
“The thing is that government is in a serious conflict crisis where there is no confidence, a by-product of thinking a villager in the name of Patrick Chinamasa will take this economy forward,” he said.
A February 2014 state of the economy report said total revenue collections for the month of February stood at US$248 million against a target of US$273, 26 million resulting in a negative variance of US$25,3 million.
However, February expenditures amounted to US$264,8 million.
In the first two months of the year, revenue collections to February 2014 amounted to US$499,6 million against a cumulative target of US$551,9 million, resulting in a negative variance of US$52,3 million or 10,47%.
“Recurrent expenditures, at 96% of total expenditures, continued to crowd out capital spending, with only 4% being disbursed for capital projects,” reads part of the Treasury report.
During the month of February, the budget balance stood at – US$16, 8 million.
Employment costs have been at the centre of debate especially since dollarisation with accusations Mugabe’s government had put Zanu PF loyalists on the payroll.
Zimbabwe employs about 250 000 people in its civil service, representing 2% of the country’s population.
In 2012, auditors from Ernest & Young of India said there were 70 000 ghost workers on the government payroll.
Economists have proposed a massive civil service job cut and cleaning up the ghost workers, who will gobble at least US$28 million monthly and US$336 million annually based on the new pay structure.
Top labour economist Godfrey Kanyenze recently said Zimbabwe’s wage bill accounts for 75% of total expenditure compared to an IMF recommended average of 40% and will even chew more from the budget after the wage rise.