Zimbabwean President Emmerson Mnangagwa. Picture: REUTERS
Zimbabwean President Emmerson Mnangagwa. Picture: REUTERS

Harare — 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 country, will get 15% raises, while veterans of Zimbabwe’s war against white-minority rule will be awarded improved benefits, Mnangagwa said last month. 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 programme, hyper-inflation and mass emigration.

Mnangagwa has led the country since November when the ruling party forced Mugabe to quit, is facing a challenge from Nelson Chamisa, leader of the main opposition Movement for Democratic Change (MDC), in the July 30 presidential race.

"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 e-mail. "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 less than 20% of GDP, almost double the ratio in SA.

Warnings unheeded

Finance minister Patrick Chinamasa, who was repeatedly over-ruled 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 labour laws, and they will have to be changed, according to John Robertson, a Harare-based independent economist. In the meantime, he expects spiraling labour 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 by phone from Harare.

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 hyper-inflation, and has used mainly US dollars.

While Zimbabwe has paid $110m of arrears to the IMF, it’s still saddled with $1.7bn in arrears owed to the African Development Bank and World Bank that it needs to clear before it can tap new loans from multi-lateral lenders. Zimbabwe’s total debt is expected to reach $14.5bn 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.

Opposition

The main opposition party, meanwhile, promised to revive the economy by cutting taxes, abolishing the quasi-currency "bond note", joining a regional monetary union and seeking debt relief.

Mnangagwa is the favourite to win against Chamisa in a contest seen as a fight between the old guard of the 1970s independence war and a younger generation. Chamisa, who has been joined by several smaller parties, said Zimbabwe would seek cancellation of its more than $10bn foreign debt to allow it to access new funding.

To end cash shortages that have seen banks limit withdrawals to as little as $20, the MDC would quickly scrap the bond note and join the Common Monetary Area led by SA, he said.

Other reforms would include cutting the budget deficit, accelerating reforms of state-owned firms and introducing a flat corporate tax rate of 15% for companies to allow businesses to re-invest money in production. Companies currently pay between 15% and 25% tax.

"This can only be done by the new and not the old that is masquerading as the new," he said, referring to Mnangagwa, while launching his election manifesto in Harare. Chamisa, however, faces an uphill battle against Mnangagwa, who has the advantage of incumbency and a well-resourced campaign, while the opposition is struggling for funding.

The death of MDC founding leader Morgan Tsvangirai in February also left the party divided as factions fought over its control. A smaller MDC camp will separately contest the election, likely splitting the vote.

Bloomberg and Reuters

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