Pressure piles on Zimbabwe government

via Pressure piles on government | The Financial Gazette Ray Ndlovu 3 Apr 2014

PRESSURE is piling on ZANU-PF to tackle a cocktail of economic challenges that threaten to bring business operations and the economy to a halt. After a landslide victory in the July 31, 2013 harmonised polls and its promise of a better managed economy, the victorious ZANU-PF administration is struggling to find solutions to the economic free fall and hence continues to dither over its promises.

Civil servants are waiting in the shadows for pay increments promised to be effected this month. There has been no clear indications that the increments would materialise as the powers-that-be are pleading bankruptcy. Civil servants gobble up nearly 75 percent of government’s monthly revenue, hence the promised salary increments would further erode the  State’s meagre resources.

Unable to fund the pay rise due to limited resources, government was forced to shift pay dates for the bulk of the civil servants as Treasury makes final attempts to finance its budget. Analysts fear this could create fertile conditions for a showdown between government and its employees, which might paralyse the economy. Civil servants’ unions have warned that they will not allow government to continue taking them for a joyride, after protracted wage negotiations that began at the end of last year.

Talks between government and unions representing civil servants have failed to change the material position of government workers, many of whom are wallowing in abject poverty. Sifiso Ndlovu, the chief executive officer of the Zimbabwe Teachers Association, the largest public servants’ union in the country, said they were trying to engage their employer to obtain feedback.

“We are still stagnating, but we are pressing hard for a meeting to settle the issue. Our members are angry, but we hope government representatives will find time to meet us and finalise the issue before April salaries are effected. Our worry is that time is running out,” said Ndlovu.

In the absence of any foreign direct investment, economic observers warn that it would be futile for ZANU-PF to make good on any of its election promises since the country’s economy  is in free fall. In March, the economy slipped into its first phase of deflation since dollarisation in 2009 after years of hyper-inflation during  the Zimbabwe dollar era.

Colls Ndlovu, an independent financial analyst, said that the country was in fact undergoing a period of disinflation instead of deflation.  Disinflation refers to the process where the rate of inflation is slower than its previous level.

“Disoriented by the benefits of low inflation which are prevailing in the country, courtesy of the much-hyped about multi-currency system, observers have already begun to predict that one of the twin evils of economics (inflation) will be replaced by yet another more deadly evil, deflation. But the country is experiencing disinflation not deflation,”  said Ndlovu. The slow growth is likely to be a deterrent to foreign investors who are closely watching the country’s performance.

The Zimbabwe Stock Exchange — used as a barometer to gauge investor sentiment — has been bearish, with the industrial index on a protracted downward spiral.  The equities market was bearish last week, with the industrial index weakening by 3,04 points to 178,06 points following losses in several blue chip counters. Offering a slight reprieve to the markets was news of the appointment of John Mangudya to the position of Reserve Bank of Zimbabwe (RBZ) governor and a US$100 million loan extended to the country by the Africa Export-Import Bank at the weekend.

Tony Hawkins, an economist and member of the RBZ’s board, said Mangudya’s appointment faced notable restrictions as the country did not have a currency of its own.
“Mangudya is a substantial figure and well-trained with lots of experience, but the governor’s job is seriously constrained by the dollar economy. Money supply is obviously out of the bank’s control, as are interest rates. There’s very little he can do in a country that has dollarised, so the focus has to be on regulation rather than monetary controls,” said Hawkins.