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Increase to wage bill disaster for economy
Taurai Mangudhla, The Independent (Zimbabwe)
August 16, 2013

http://www.theindependent.co.zw/2013/08/16/increase-to-wage-bill-disaster-for-economy/

President-elect Robert Mugabe’s recent pledge to increase civil servants salaries by year-end would spell disaster to the bleeding economy, analysts say.

During his Heroes’ Day Commemorations speech, Mugabe promised to address the issue of salaries and living conditions for civil servants by year-end.

He said despite budgetary constraints, government managed to increase the basic salary and allowances of public servants by 5,3% with effect from January this year as well as introduce allowances for members of the public service based in rural areas.

In addition to augmenting the monetary allowances for members of the public service, Mugabe said government was offering other incentives such as housing, residential stands and training loans.

“Government is committed to improving the pensions and general welfare of war veterans, ex-detainees and heroes’ dependants. In this regard, the National Heroes Dependants Assistance Fund, which was established to provide monthly allowances for both surviving spouses and minor children under the age of 18, will receive support from government’s empowerment schemes,” he added.

While some economists contend Mugabe is just politicking and will not follow through on his promises, others believe the president-elect will deliver on the promise to regain support.

An analyst who requested anonymity said the new government could simply bring some of the diamond money, previously unaccounted for, into formal circulation and fund such an initiative.

Civil servants constitute a significant portion of the country’s formal workforce, hence fears that an increase in their wages could, as in previous instances, result in increased inflation driven by higher rentals and higher prices of basic goods and services.

Economist John Robertson said Mugabe’s move is ill-timed as other economic variables are at variance with a civil service wage rise. He said a decision to spend more on civil servants from the country’s tight budget would crowd out social services expenditure.

“We will not be able to run this economy properly if we take more to pay wages. In fact, that’s the reason education, health and power stations are not working properly,” said Robertson in a telephone interview.

He said government needs sound economic policies to stimulate activity and increase all revenues so as to support a wage rise.

“You can’t give higher wages when you don’t have activity. You have to start where the money comes from,” Robertson said.

“Tax revenues which are used to pay civil servants are a function of economic activity and for him (Mugabe) to have more revenue, we need more economic activity, more investment and more production. That means we have to mend what has been destroyed, we need to start with farming and the land reform.”

Bulawayo-based economic analyst Erich Bloch said while it is critical to increase civil servants’ wages, a viable plan needs to be in place.

“Civil servants are grossly underpaid, but if we are to increase their wages in this current situation it means we have to cut down on other expenses and reduce the budget deficit,” he said.

“There should be a tremendous reduction on travel costs by cutting down on these huge government delegations and we should also remove ghost workers who were exposed by an independent audit so that we can use the money they are getting to pay more to real and existing government workers.”

According to an Ernst & Young audit report, government could have as much as 75 000 ghost workers who gobbled close to US$18 million per month since 2009 in wages.

Bloch’s assertion resonates with Confederation of Zimbabwe Industries’ immediate past president Joseph Kanyekanye’s argument in 2012 that there is need to actually retrench a significant portion of government employees in line with the current budget’s limited capacity.

Civil servants’ salaries were gobbling up nearly US$2,6 billion in 2012, which translated to 70% of the government’s total revenue collections. Government spends around 35% of GDP compared to 27% on average for Africa and 25% for Asia.

Over half the total expenditure goes towards salaries for 230 000 civil servants, the highest ratio of public service wages to gross domestic product in sub-Saharan Africa except in Lesotho.

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