BY TATIRA ZWINOIRA
FOLLOWING a spirited campaign by teachers’ unions for government to review civil service salaries in line with skyrocketing prices, the Finance ministry made an important but difficult concession and agreed to pay bonuses in United States dollars.
It will shell out over US$100 million in bonuses to its 300 000-strong work-force to help them overcome headwinds stemming out of extensive currency battering on the parallel market, where rates have rioted ahead of the festive season.
After kicking off at about US$1:$120 in January this year, parallel market rates have advanced at a shocking pace since September, striking past the US$1:$200 mark in the past month, and still charging.
Authorities, usually unperturbed, have been unsettled, with a hunt for delinquent citizens blamed for stoking up the flames underway.
The positive spin-off from the government’s moves are plenty — private sector firms may be forced to follow suit.
And if a significant number of private sector firms pay Unites States dollar bonuses, that will be key to defuse the growing influence of black-market kingpins on the currency market as demand for forex outside the official market would slow down.
But as leading economist John Robertson told The Standard on Friday, everything would depend on whether the cash-strapped government would have capacity to raise the money.
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He said should government struggle to fund the bonuses, Zimbabweans can expect heavy United States dollar taxes in future to help government raise foreign currency that it is likely to borrow and pacify the civil service.
On Friday, economists and unions agreed that US dollar bonuses would ameliorate the troubles confronting poorly paid civil servants.
But they also warned that government was only tinkering on the periphery.
A solution to Zimbabwe’s crisis lied in addressing economic fundamentals behind the gruelling meltdown, they said.
Apex Council spokesperson David Dzatsunga told The Standard that government’s decision came at the right time.
Civil servants, like many consumers struggling to make ends meet, would now buy and save in a stable currency.
He said earnings in foreign currency also meant civil servants would not be at the mercy of black market for only a few months.
United States dollar units, while scarce on the official market, are readily available on the parallel market, where they have been trading at two- or three-time higher rates than those on the foreign currency auction system.
“It is going to improve civil servants’ capacity to save,” Dzatsunga said.
“They can now save and this is a major, major thing because it will always save them from the sharks (parallel market dealers) that are in the streets that have been fleecing them for quite a long time.
“When they get their salaries, the rate goes up on the black market.”
This has been the driving force behind the erosion of purchasing power that has created millions of poor working-class families in the past few months.
They earn in Zimbabwe dollars, but a significant part of the markets have long rejected it as a medium of exchange.
Consumers have to buy foreign currency first after earning their salaries, in order to pay for their requirements.
But the process of switching from one currency to another has not been an easy one.
They lose more through punitive bank charges, and some irrational fees being demanded by everyone along the difficult-to-regulate dark market chain.
“The value of wages has been progressively going down as the exchange rate has shot up.
“I think it is going to change a lot of things in that respect.
“Our hope is that this is a realisation by the government that we cannot continue chasing our own tail to say you negotiate an RTGS salary and as soon as you are done agreeing on it, it begins to lose value then we go back to the same place.
“I think from our perspective, this is a tacit admission by the government that the way we have been doing things is not the right way and coming into the new year, the government should consider paying salaries in US dollars.
“We really feel that is the only way we can preserve the value of whatever we negotiate,” he added.
For consumers, the hope is that taking away government’s 300 000-strong staff complement from the black market during the festive season rush for forex would somewhat help stabilise the rampaging rates as demand falls.
But Zimbabwe’s dark markets are difficult to predict.
Many dynamics always emerge to drive the exchange rate.
Persistence Gwanyanya, a member of the Reserve Bank of Zimbabwe’s monetary policy committee, agreed that the bonuses could help stem the rage.
“The laws of demand and supply say if everyone is selling, the price must go down,” he said, referring to the possibility that US dollar would flood the market as civil servants try to make a few quick bucks.
“You cannot keep money when you are dying of hunger.
“If you give a poor person money, do you think they will keep it?
“Propensity to consume it is much higher among the poor people than the rich people.”
However, Gwanyanya said a major consequence of US dollar bonuses would be a further erosion of confidence in the Zimbabwean unit.
He said the short-term benefits were not a solution.
Instead, government should devote more time on stabilising the volatile domestic currency, he said.
Labour and Economic Development Research Institute of Zimbabwe executive director Godfrey Kanyenze said United States dollar bonus payments were an acknowledgement that there were serious distortions around currency reforms.
“Whereas waivers have been provided to business, government departments, state enterprises and others, that has not been extended to workers,” Kanyeze said.
“In this regard, the government is recognising that it is an anomaly that civil servants are being paid in the local currency and yet if they want fuel, for instance, they have to change their local currency into foreign currency and purchase in the currency that is being used by those service providers.
“So, it is a serious challenge given the erosion of incomes through inflation.
“Salaries that are denominated in local currency are susceptible to erosion.”
Kanyenze said government’s decision was only a stop-gap measure, noting that Tripartite Negotiating Forum meetings should be activated for government, labour and business to map the way forward.
Robertson agreed that the strategy that government was pursuing would work for a very short time.
He said instead of rushing to make US dollar payments, efforts should be devoted towards addressing shortcomings behind the meltdown.
Robertson said government, under pressure to pacify growing discontent within the civil service, could be forced to make unbudgeted payments and increase the national debt.
And if Treasury decides to make fresh borrowings to fund bonus payments, the debt may rise and aggravate an already low country risk profile.
“It means the government has to raise US dollar taxes in order to pay US dollar salaries or bonuses,” Robertson said.
“I think that it is absolutely wrong for the government to give itself the authority to demand tax payments in the currency of another country.
“The United States is another country.”
He added: “Whether it is the United States or Britain or Europe or anywhere else, it is wrong that the government should rely on money that comes from another country to pay taxes in this country.
“The government has done damage to the local currency of this country and that is where its efforts should be concentrated, turning the local currency into a currency we would all respect.
“The reason the government is saying they want to use foreign currency to pay this, the reason why the civil servants, police and military are all saying we want US dollars is because the local currency is not worthy of respect.”