Zimbabwe warned on civil service pay

Published: 15 June 2018

THE International Monetary Fund has warned government over civil service salary increases, citing fiscal consolidation challenges amid a widening budget deficit.

Fiscal deficits have continued to haunt government with authorities targeting a $672 million deficit.

This could, however, widen following recent hikes in civil servants salaries.

"Fiscal consolidation is a critical element for stabilising the economy, since persistent large deficits crowd out private sector investment, exacerbate external imbalances, and further undermine confidence in the currency regime.

"Given the tight fiscal space, it is important to prioritise and rationalise all spending, ensuring that needed expenditure increases are met with commensurate cuts in other expenditures or with revenue increases to minimise the impact on the deficit target", said the Fund's spokesperson in an online global update.

Zimbabwe has over the years continued to overspend, with last year's deficit outturn standing at $1,7 billion, representing 9,4 percent of gross domestic product (GDP).

Government is likely to overspend on the July 30 election on ballot papers and election agents at a time the country has been failing to access new lines of credit due to a lingering $10 billion debt.

Treasury has, however, called for the need to adhere to fiscal anchors to contain the budget deficit.

This financial year's acceptable budget deficit is 3,5 percent of GDP, while the revenue available for appropriation by Parliament for this year totaled $5,071 billion.

Total expenditure and net lending stands at $5,743 billion. The fiscal deficit is forecast to close the year at $1,4 billion.

"At the heart of the economy's fundamental economic challenges is an unsustainable budget deficit whose financing through issuance of Treasury Bills and recourse to the overdraft with the Reserve Bank is untenable. This is also at the core of factors driving demand for foreign exchange, as well as creation of excess money supply, which is largely in the form of real time gross settlement and mobile balances," said government in its 2018 National Budget statement.

Government was also targeting progressive reduction of the share of employment costs to 70 percent this year, 65 percent in 2019 and below 60 percent of total revenue by 2020, to create fiscal space to accommodate financing of the development budget and government operations.

Money creation through domestic money market instruments, which do not match with available foreign currency, weakens the value of the same instruments, translating into rapid buildup of inflationary pressures, to the detriment of financial and macroeconomic stability.

- fingaz

Tags: Zimbabwe,