Broke Zimbabwe plans spending spree as elections approach

Zimbabwean President Emmerson Mnangagwa has pledged to spend money his government doesn’t have on increasing its 350,000 workers’ salaries as the country gears up for next month’s elections.

Civil servants, who account for most formal jobs in the southern African country, will get 15% raises, while veterans of Zimbabwe’s war against white-minority rule will be awarded improved benefits, Mnangagwa said. His willingness to spend taxpayer money to bolster his support undermines his pledge to ensure a free and fair vote and bring an end to an era of contested results under former President Robert Mugabe.

The spending spree will also hamper efforts to rebuild an economy shattered by a failed land reform program, hyperinflation and mass emigration. Mnangagwa, 75, who has led the country since November when the ruling party forced Mugabe to quit, is facing a challenge from Nelson Chamisa, 40, leader of the main opposition Movement for Democratic Change (MDC), in the July 30 presidential race.

The opposition has promised to scrap bond notes, introduced in 2016 as a form of currency, and compensate former white farmers who lost their land if it’s elected to rule next month. The MDC also said on Thursday its longer-term goal would be to join the rand monetary union and the Southern African Customs Union.

“With the elections imminent and government workers a euphemism for party loyalists, the timing of the public sector wage hike proposals appear to be politically motivated,” Hasnain Malik, the Dubai-based head of equities research at Exotix Capital, said by email. “This is not an increase that the government can afford.”

Zimbabwe’s payroll already swallows more than 90% of government revenue, according to the International Monetary Fund (IMF). The wage bill equates to just under 20% of gross domestic product, almost double the ratio in neighboring South Africa.

Warnings Unheeded

Finance Minister Patrick Chinamasa, who was repeatedly overruled by Mugabe when he sought to curb bonuses and pay hikes aimed at bolstering dwindling government support, appears to be facing the same situation under Mnangagwa.

While he cautioned at a conference in Harare last month that the pay increases will make the government’s already shaky finances even worse, his warnings have gone unheeded.

Containing the wage bill will require the government to drastically cut staff numbers, which wouldn’t be affordable under current labor laws, and they will have to be changed, according to John Robertson, a Harare-based independent economist. In the meantime, he expects spiraling labor costs to be a further drag on an economy that’s halved in size since 2000.

“We are already uncompetitive, so higher wages will make exports impossible,” Robertson said.

Cash Shortages

Even without the latest salary increases, the government has been struggling to pay its workers on time as it contends with chronic cash shortages. Zimbabwe abandoned its own currency in 2009 to end hyperinflation, and has used mainly US dollars.

While Zimbabwe has paid $110-million of arrears to the IMF, it’s still saddled with $1.7 billion in arrears owed to the African Development Bank and World Bank that it needs to clear before it can tap new loans from multilateral lenders. Zimbabwe’s total debt is expected to reach $14.5-billion this year, the Finance Ministry said in the budget.

Given that a credible commitment to fiscal deficit reduction is a key part of securing new funding, the proposal for big salary increases “is a negative development, taken in isolation,” Malik said.

- Bloomberg