Civil servants on edge as government runs out of cash

Source: Civil servants on edge as government runs out of cash | The Financial Gazette June 16, 2016

THE cash-strapped government is facing increasing fiscal pressures on the back of a rapid decline in tax revenues amid tell-tale signs that it could struggle in the coming months to pay salaries for nearly 350 000 civil servants on its payroll, the Financial Gazette can report.
Conservative estimates suggest that the cash crisis rattling markets has worsened the country’s economic health, with consumer spending dipping by as much as 40 percent in the past month.
The net effect of this has been a huge decline in sales volumes across sectors, squeezing tax thresholds remitted to the taxman.
Indications are that further job losses are inevitable as employers are likely to react in the coming months by either slashing salaries or offloading workers onto the streets, which are already teeming with job seekers.
With red lights flashing on government, Treasury has immediately responded by spreading salary payments throughout the month to manage cash flows.
The public sector wage bill currently accounts for over 80 percent of government expenditure, meaning that a paltry amount remains for crucial infrastructure development projects, critical in turning around the economy.
To manage the fiscal pressures, government has resolved to pay civil servants almost every week and in order of priority. As usual, the uniformed forces will be the first in the queue, followed by health workers.
Ever since the pay dates became more of a moving target, the entire civil service has been gripped by uncertainty.
Talk of an impending rationalisation of the public service in line with recommendations from the International Monetary Fund has also seen morale among government workers plumbing fresh depths.
While Labour and Social Welfare Minister, Prisca Mupfumira, and her finance counterpart, Patrick Chinamasa, could not be immediately reached for comment, the Reserve Bank of Zimbabwe (RBZ), which resumed its function as the bank of government in 2014, confirmed the development.
Until 2014, CBZ Bank — the country’s largest retail bank by assets — had been acting as the State’s bankers from 2009 because of the central bank’s poor capitalisation at the time.
John Mangudya, the RBZ governor, confirmed this week that the pay dates have indeed been reviewed once again to manage the liquidity situation.
He said: “Queues that you see (at the banks) – it’s not a run on deposits but government has now spread pay dates meaning almost every week some government (workers) will be paid.”
As government continues to grapple with the symptoms of the crisis, Chinamasa has instructed the Zimbabwe Revenue Authority to come up with measures to start collecting tax from the informal sector in order to alleviate the cash crisis.
The Finance Minister admitted last week that the formal sector was now dead, resulting in revenue challenges for Treasury in the face of investor fatigue, lack of balance of payments support and poor inflows from aid agencies.

Hundreds of workers are being thrown out of their jobs as more and more companies collapse or downsize.
The situation has forced many unemployed people to resort to vending to eke out an honest living. Zimbabwe’s economy is now highly informalised.
Statistics show that at least 94,5 percent of Zimbabweans are informally employed, resulting in government’s revenue base dwindling.
An estimated US$7 billion is said to be circulating in the informal sector, which is nearly two-thirds of Zimbabwe’s gross domestic product.
An investment analyst, Gerald Gondo, painted a gloomy picture for the country’s economy.
“Zimbabwe’s macroeconomic indicators are not speaking to a fantastic growth story,” said Gondo.
“The macro environment is not supporting business. The Zimbabwe Stock Exchange has lost more than 60 percent in dollar value in the last two years. Therefore business is not going to survive in such an environment; it’s very difficult. There is need for policy change to make Zimbabwe more investor friendly,” he said.
Economist, John Robertson, said the situation was grave.
“In some respects, we have experienced collapse already in specific areas, such as food security, the textiles industry, pharmaceutical production, vehicle assembly, city centre property development, employment creation, consumer goods exports, education standards, medical aid society payments … I am sure many more could be added to the list,” said Robertson.
He said bad policies had damaged the economy, forcing the unemployed majority into vending.
He said informal operators had “recognised opportunities that have been turned into income sources”.
“These operators need to work hard, often for very little, and often need courage as well as the ability to persuade others to support them with a few dollars, help with transport and help with caring for their families, while they travel away from home.
“The (economic) collapse that has impacted on them, has made their lives more difficult, has left them and their families with fewer options, but they have kept going. That is where Zimbabwe’s remarkable story lies, and it would seem that, if we don’t make dramatic changes to the long series of damaging policies that have been inflicted on the economy, even more people will find themselves forced to join the informal sector,” said Robertson.
“But there are limits to everything. Already, far too many people are relying on the limited purchasing power of the markets targeted by informal traders, so adding to that number while further cutting the total earnings through additional job losses will cause the very low average informal earnings to fall even further.
“If we all recognise that we desperately need changes that will lead to the creation of hundreds of thousands of jobs, and if we keep reminding ourselves that each job costs thousands of dollars to create, we will readily accept the fact that many hundreds of millions of dollars worth of new investment has to be attracted to create the new businesses that are needed to employ the people. To attract investment, investor confidence has to be rebuilt so well that the investors, who could choose from 200 other countries, become willing to choose Zimbabwe. Very big policy changes are needed if we are to make ourselves that attractive.”
Mangudya this week said the apex bank was doing all it could to address the cash shortages.
“We need to disburse more than US$100 million. We are importing money to circulate in Zimbabwe but it’s not happening,” he said.
The current situation has brought back memories of the hyperinflationary era of eight years ago as depositors scramble to withdraw their hard-earned money.
While the maximum withdrawal limit prescribed by the RBZ is US$1 000 a day, most banks can only release US$100 a day to their frustrated clients, resulting in depositors being charged punitive transaction costs due to multiple transactions.
Most banks are no longer allowing depositors to withdraw money from banking halls.
Instead they have to queue to withdraw money from the automated teller machines (ATM) where they can get a maximum of US$100 a day.
But most of the ATMs are not fed with cash, leaving depositors queuing at the few machines.
Some banks are now restricting depositors to a single withdrawal per week, allowing a maximum withdrawal of US$500.
Faced with growing pressure to rescue the ailing economy, government plans to introduce into circulation bond notes in October, whose value will be at par with the greenback.
The bond notes will be equivalent to US$200 million. The facility will be backed by the African Export-Import Bank.
The move has since been backed by President Robert Mugabe although many believe government wants to bring back the Zimbabwe dollar through the back door.
But Mangudya insists he has no desire to introduce the Zimbabwe dollar. Regardless, there is widespread panic and people are withdrawing their money from the banking sector, exacerbating the cash crisis.

COMMENTS

WORDPRESS: 7
  • comment-avatar
    IAN SMITH 6 years ago

    The situation has forced many unemployed people to resort to vending to eke out an honest living. Zimbabwe’s economy is now highly in-formalized.

    Like wise the deliberate destruction, dismantling of the commercial farms has led to the resurgence of subsistence farm so no revenue to support the public service departments
    No taxes a levied against the new land barons who hold land as a status symbol

    What a bunch of morons it took hundreds of years to balance the system. Bob Matibile’s (aka mugabe) brand of Chikurubi Prison ECONOMICS HAS FAILED. SOON HE MUST RETURN TO GET A REFRESHER COURSE.

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    Jono Austin 6 years ago

    so we now see why they are trying to reintroduce the zimdollar-to meet Government out of control expenditure! However that will only be a short term solution-maybe 3 months before total collapse-inflation will skyrocket. At any rate I don’t see shops accepting worthless toilet paper as currency. So Zanu will force shops to accept the bonds which will result in empty shelves. But never mind, salvation is at hand in the imminent creation of 2 million jobs that were PROMISED. Or perhaps they have been created in the informal sector-maybe that’s what Zanu meant. Throw workers onto the streets to grub for a living. If they sell a tomato that means a job has been created. Wait for Zanu to form another GNU (part2) with MDC. Morgan will probably buy into it as he is not the brightest button in the box. Don’t know whether the populace will accept it though. If GNU part 2 is formed, Zanu will want security and home affairs (to protect the ‘gains’ of the revolution) and MDC can have everything else-in other words get money in for Zanu to steal. Once the country is fairly stable economically then an election will be held which Zanu will steal (even if MDC get over 70% of the vote) and Zanu will flatten the recovering economy through moronic decisions (Indigenisation) and massive corruption, The wheel then turns once again.

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    Hondo 6 years ago

    I’m looking forward to Zanu announcement that it cannot pay the army.

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    Mazano Rewayi 6 years ago

    The real morons of the Zim tragedy are we the Zimbos ourselves. I am a Zimbo and a moron too. I travel through the country and see people complaining everywhere, I complain too. Yet we never seem to agree on what to do. We see failure everywhere but somehow believe that the architects of that failure will solve the problem. In 1978 the Rhodesian economy was 11 times bigger than the Botswana economy, 40 years later the Zim economy is half that of Botswana! Still we celebrate great leadership! In 1980 China made bicycles whilst we assembled buses, 36 years later we buy needles from China. Yet we fight to safeguard the gains of the revolution! We once fed the world, now we beg for left overs. We once clothed the region but now fight over used underwear! Yet somehow we believe we are the best. Our currency was once accepted everywhere in the region, now we do not have any. Somehow we claim to be the smartest! We cannot even say what we feel openly yet believe we are liberated, even profess to be free, even argue to be democratic! We once had the cleanest towns, had electricity and running water 24/7, now our kids do not even know what a water tap is. We even drink our own sewage. Yet we pronounce progress everywhere! Our country was once described as “the most beautiful place that is not an island”. Now we see desertification everywhere, silt the rivers and pollute everything. Still we cling to the belief that we are better than most African countries! We have the longest sitting government without results in the world, and we fight to keep it there. Even plan to give it another 7 years and even more powers to the CEO! And we clap and ululate when told he will rule us from the grave. Collectively, we are a nation of imbeciles, idiots beyond description. We steal the hope of those not even born yet boast we are the most educated! Fools we are and we deserve our suffering!!

    • comment-avatar
      I am not the one 6 years ago

      Mazano, that was a great read and very apt description of the country and its people. Sadly though, it will not inspire anybody to do anything apart from telling themselves once again how great live is in Zim!!

  • comment-avatar
    Stephen Drew 6 years ago

    So why don’t we take back what’s ours? Nobody from outside Zimbabwe will stop us, we only have to make sure it’s done in terms of creating a new meritocracy for all. Redistribute stolen resources and create a fair impartial playing field. It’s all in our hands, the only problem is we don’t believe in ourselves.

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    United Brothers 6 years ago

    Mazano Rewayi you nailed it, that’s the biggest problem with us Zimbos and the gullible Mugabe knows that. We Zimbos will do nothing to him. The Mugabes are taking us for granted to an extent of saying tichatongwa from the graves by Mugabe.