‘Huge govt wage bill contributing to cash crisis’

Source: ‘Huge govt wage bill contributing to cash crisis’ – NewsDay Zimbabwe July 12, 2017

A SENIOR consultant and economist with the Office of the President and Cabinet (OPC) says monthly government wage payments are contributing to a growing imbalance between bank deposits and real cash.

BY TATIRA ZWINOIRA

OPC ease of doing business consultant and economist, Ashok Chakravati told NewsDay recently said that the huge government wage bill was contributing to the liquidity crisis the country was facing.

“The government is spending about $200 million in wages and salaries (every month) and that keeps on adding to the deposits in the system,” he said.

“The money goes into the banks as deposits for all civil servants and other people working for the government. So the deposits have been increasing month-by-month over the last several years.

“We have no source of supply for United States dollars, so it is inevitable we are going to have this kind of liquidity problem (parallel market). There is a shortage of cash and that is why all these markets have developed for the exchange of cash.”

The wage bill is already chewing about 90% of government expenditure, leaving the government broke on a monthly basis.

With government setting aside huge amounts of money each month to pay workers, mainly through bank transfers and with no clear cash backing, the disparity between deposits and real cash continues to raise.

The growing disparity between deposits and real cash is evident in the Reserve Bank of Zimbabwe’s April monthly economic report. In the report, while broad money grew by 22,67% to $6 116,8 million, the currency in circulation was only a meagre 2,51% ($153,53 million) of that amount.

“There is an imbalance as I have repeatedly said between the amount that is in deposits in the banking system and the cash that is in the system and by cash I include United States dollar circulating, nostro accounts and bond notes there is an imbalance between the two,” Charkravati said.

“You know, in all countries, there is a certain ratio of bank deposits, which are all electronic and the real cash, so our current situation is one where the cash circulating is very short compared to the deposits in the system.”

He said the country needed about $1 billion in cash to be circulating to ease the cash crisis.

“Let us be very frank, if you go and stand in a queue and you get $50; that money will not go back into the banking system,” Chakravati said.