IMF Warns Zimbabwe Against Pay Boost as Living Standards Crash

The International Monetary Fund cautioned Zimbabwe’s government against boosting wages for state workers unless it has sufficient tax revenue to do so after the introduction of a new currency pushed up inflation and reduced spending power to a 10th of what it was six months ago.

The warning puts the IMF at odds with Finance Minister Mthuli Ncube, who said in an interview he’s in favor of boosting wages in both the public and private sectors to restore living standards and create consumer demand. Ncube is looking for ways to revive an economy that’s forecast to contract this year for the first time in a decade.

In the six years to 2016, Zimbabwe boosted pay for its about 400,000 civil servants to a level that makes up more than 90% of tax revenue, compared with 40% in 2010, said Patrick Imam, the IMF’s resident representative.

“The government wage bill is now on a sustainable footing,” he said in response to questions. “Looking ahead, it is crucial that public wage growth be aligned with economic growth and government revenue.”

In February, the government said a quasi-currency known as bond notes, and RTGS$ in their electronic form, would no longer trade at parity with the U.S. dollar and in June it reintroduced the Zimbabwe dollar, which it had abolished in 2009 after a bout of hyperinflation. It also banned the use of the American currency. The exchange rate is now about 10 to the U.S. dollar and the price of goods bought by middle class workers, such as civil servants, has risen in tandem as these are mostly imported. Officially annual inflation is at 176%, but some analysts estimate it’s as high as 570%.

The resulting economic hardship has spawned calls by the opposition for protests against plunging living standards.

Police violently dispersed demonstrators in the capital, Harare, on Friday, while a second planned rally in the second-biggest city of Bulawayo on Monday was banned by the government. More protests are planned in other cities this week. In Harare 128 people were arrested during the demonstration, according to human rights lawyers.

Having fired 3,000 workers from the public service, there’s limited room for the state to cut jobs further. Both the IMF and the government say that more health workers and teachers will be needed in coming years.

Austerity Measures

Ncube’s government has implemented harsh austerity measures, including regular hikes to fuel prices, in a bid to comply with an IMF Staff-Monitored Program seen as a precursor to getting debt relief that’s needed to restore the economy. It will also need to implement a series of political reforms to convince creditors to participate in any debt restructuring.

The IMF program is due to end in March, with a first review scheduled for next month.

“The Staff-Monitored Program is also intended to assist in resolving the long-standing arrears to external creditors and facilitate re-engagement with the international community,” Imam said. “Given the recent history of Zimbabwe, in particular the fact that the country has arrears to other international organizations, as well as bilateral arrears, the fund is not yet in a position to financially support the country.”

Zimbabwe’s economy collapsed after a wave of seizures of white-owned commercial farms that began in 2000 slashed export income. In November 2017, Robert Mugabe, who had led the country since 1980, was ousted as president in a coup and replaced by Emmerson Mnangagwa. Ncube was appointed about a year ago and tasked with putting the economy back on a sound footing.