Government bond notes bonus?

Government workers have said they would welcome bonus payments from their cash-strapped employer in bond notes, but warned the surrogate currency should not be used to ruin the country’s fragile economy.

This comes as Public Service, Labour and Social Welfare Minister, Prisca Mupfumira, said she could not rule out payment of salaries using the recently introduced national currency.

Mupfumira told the Financial Gazette that she could not give an authoritative comment “now because we are yet to finalise the bonus issue”.

“But to me, a salary is a salary whether it’s in bond notes or United States dollars, it’s not a big issue. What is key is (if) we have the capacity to pay,” she said.

Sifiso Ndlovu, the chief executive officer of the Zimbabwe Teachers’ Association, the largest civil servants’ representative body, said they would not reject bonus payments in bond notes.

“The issue of bond notes was a resolution for internal functioning of our economy. We cannot reject it. It’s meant to facilitate trade. But these bond notes should come to stimulate the economy and not to destroy what is already there.”

Zimbabwe Nurses Association’s general secretary, Enock Dongo, said they would welcome bonus payment in bond notes as long as the rate remained at par with the greenback.

“We stand by the concept of bond notes. If the official exchange rate of 1 to 1 against the United States dollar stands, we don’t have any issue. But if it starts being rated, then we have a problem. We don’t want our people to suffer.”

Government, which had already run a budget deficit of about US$623,2 million between January and June this year due to revenue under-performance, is desperate to raise cash to pay its workers a thirteenth cheque.

But it does not have the financial capacity to do so. Finance and Economic Development Minister, Patrick Chinamasa, had suggested scrapping the bonus payment in his mid-term fiscal policy review, saying if government failed to contain its expenditure “in the shortest possible time”, the deficit would worsen to over US$1 billion by year-end.

The 2016 National Budget had projected a full-year deficit of US$150 million.
Financing of the budget deficit has been primarily through Treasury bills (TBs), which are issued by the Reserve Bank of Zimbabwe on behalf of government.

Due to government’s financial circumstances, Treasury has been unable to service this debt, forcing it to roll-over the TBs.

This, inevitably, has posed serious risks on holders of the debt instruments, particularly financial institutions that have now resorted to huge bank charges to stem losses.

Chinamasa  has acknowledged that the situation is not tenable and is undermining the stability of the financial sector and overall economy.

He has warned that government borrowing was crowding out lending to the private sector and, therefore, stifling new domestic investment and growth.“This is creating a vicious cycle, whereby excessive government borrowing leads to poor performance of the private sector and, in turn, diminished future tax revenues.”

Analysts warned that payment of civil servants bonuses using bond notes would likely trigger an inflationary crisis due to the fact that the money would not have the backing of increased production in the economy.

Raymond Majongwe, the secretary general of the Progressive Teachers’ Union of Zimbabwe, said he feared that government would make bonus payments using bond notes regardless of the consequences.

Majongwe said: “These guys know that they are dealing with desperate Zimbabweans; they are dealing with a vulnerable population. And they know options are limited. They see nothing wrong in people accepting rats as relish.”

Government, which has over 550 000 civil servants on its payroll, needs to raise at least US$250 million for bonus payments. It is currently battling to raise monthly salaries for its workers.

Last year’s civil servants’ bonuses were in arrears until April this year, when government eventually started making staggered payments to fulfil its obligation.

Cecilia Alexandra, the president of the Apex Council, an umbrella body that represents all civil servants unions in the country, said the issue of bonus payments had not yet been discussed.

“The last time we discussed the issue, government said had no money,” said Alexadra.
The RBZ last week released US$10 million worth of bond notes into the market.

It is expected to release a further US$75 million before year-end to bolser liquidity into the economy.

Although the bond notes were meant to be an incentive to exporters, the currency, said to be backed by a US$200 million Afreximbank facility, has been used in place of US dollars for cash withdrawals.

To fund civil servants bonuses, government would have to authorise the printing of US$250 million, far more than the US$75 million which the central bank had promised to release this month.

The RBZ has said its ceiling for bond notes in the economy would be US$200 million, in line with the Afreximbank facility.

RBZ governor, John Mangudya, said paying civil servants’ bonuses using bond notes was out of the question.

“There is nothing like that at all. Bond notes are funding the export incentive scheme and not civil servants salaries,” he told the Financial Gazette. Financial Gazette