Civil servants on edge as government runs out of cash
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.
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