Unconscionable and Catastrophic: The unmitigated disaster that is government`s deal with the civil service while pushing for wider use of the ZWL.
No sooner had the ink dried from Treasury`s last February the 4th statement announcing what it terms “measures to enhance the domestic use of the ZWL”, did three cabinet ministers flank each other on the national broadcaster to effectively undermine those measures.
In an attempt to appease the around 136,000-strong teaching work force in the country, government has offered a mix of monetary and non-monetary benefits, which decidedly fall short of expectations. Of key interest is the offer to pay civil service workers an extra US$100 in foreign currency.
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This effectively orphans the aforementioned, and much vaunted move by treasury to promote use of the local currency. In an earlier post, I talked about how government over the last couple of years has treated its own currency with disdain. And this latest move by the government bureaucrats emphasizes this point.
All this against a backdrop of potentially diminished US dollar collections for government, given that miners will now be paying up to half of their taxes and royalties in local currency, and exporters also paying a portion of their taxes in ZWL.
Unbudgeted for
The very fact that these US dollar payments have been pushed downwards to only kick-in a month later, in March, betrays the fact that this expenditure was unbudgeted for, and that government is already pressed for cash. In any case, there will be tax implications to this given government`s latest policy on mixed ZWL/USD income, which will potentially leave workers worse off.
Now would have been the opportune time to definitively back the local currency, however unpopular it may be, and insist on local currency denominated increments. For consistency more than anything else, at the very least. However, this latest move, admittedly driven in large part by the growing unrest over the dehumanizing civil service salaries will only further embolden the transition toward dollarization.
The reality of the Zimbabwean market is that at least 70% of the economy is now in dollars. The 20% increment awarded by government t in local currency is inadequate and pales in comparison to inflation which is around 60%. What`s worse, it has been awarded in a currency no one wants anyway. Government itself is not helping the situation either.
Treasury and Reserve Bank at Odds?
Just a couple of days ago, Reserve Bank governor, John Mangudya delivered a rather wearisome lecture in his Monetary Policy Statement encouraging the use of the ZWL. He argued that, “promoting the broader use of the Zimbabwe dollar needs to be embraced by all in the country and all players within the economy to minimise the sentimental value of holding on to the past dollarization era which was fraught with its own challenges.”
Clearly then, events of yesterday indicate a misaligned and undecided system, that is lacking the backbone to stick to its guns. A clear archetypical scenario of the left hand not knowing what the right hand is doing. If only Mangudya knew what his colleagues up the street were planning, perhaps he wouldn`t have bothered with the lecture.
Hollow and high-sounding nothing victories
More worryingly, events like these just expose the hollowness behind the fanciful GDP growth, budget surplus figures, to the everyman, if these are not translating meaningfully where it matters the most. Their pockets.
Whatever growth and development that the government bureaucrats beat their chests over, is plainly not inclusive, and there are large swathes of people that have actually been pushed down into poverty. One cannot gloss this over. It is criminal actually!
Contrary to the governor`s claim that people are attracted to the US dollar because of sentiment, nothing could be further from the truth. The market (business and households) prefer the US dollar because it is an active hedge against a fast depreciating local currency, blighted by the caprices of a highly inflationary environment.
It is for this reason that no one wants it. And by offering to pay in US dollars, government is conceding this to be true! Are they even being sincere in advocating for wider usage of the local currency?
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