By Helen Kadirire
Increased government spending is seen exerting more pressure on inflation, thus pushing prices of basic commodities beyond the reach of the majority poor.
Last week, the ruling Zanu PF government announced a raft of monetary rewards for its employees to take effect from this month.
These include payment of a 17,5 percent special civil service allowance and cash-in-lieu of leave for teachers who have accrued more than 123 days of vacation leave.
At the same time, Treasury was directed to release funds to clear outstanding leave days over the next six months and lower rentals for government workers at institutional accommodation in accordance to their grades.
Not so long ago, President Emmerson Mnangagwa’s administration which faces a tricky plebiscite on July 30 bowed down to pressure from doctors, nurses and teachers, who were agitating for salaries consistent with the breadline.
Analysts told the Daily News yesterday that the additional expenditure was certain to compound pressures on the fiscus, whose only recourse would be to accumulate more debt or print money.
Government debt has shot up significantly over the past five years.
Whereas government borrowing was at $200 million in July 2013, it now hovers around $9 billion as of June this year.
On the inflation front, year-on-year inflation increased to 2,91 percent last month from 2,71 percent in May, on the back of the rising cost of living.
Economist Tony Hawkins believes that in reality the inflation figures could be much higher than officially reported, a notion shared by the Cato Institute, which suggested last year that Zimbabwe was already in the throes of an ignominious hyperinflation.
At the time, the Cato Institute put Zimbabwe’s monthly rate of inflation at 77 percent and the annual rate is 348 percent, as of October 25, 2017.
Hawkins said the increase in the public service wage bill has partly contributed to the rise in black market foreign currency exchanges, which are edging into new territories.
“A lot of people think though that this is temporary although this is not ….in the longer-term, there has to be devaluation after elections. In the meantime, government will continue to borrow leading to higher inflation,” he said.
“Another point that may have been overlooked is that the increase in civil service salaries will also spur an increase in private sector (salaries) as well. Private companies will have to increase their wages to correspond with government and private facilities such as schools and hospitals will also need to do the same thing and that will definitely increase the inflation rate,” Hawkins added.
Another economist, Kipson Gundani, said the developments in the market may also point to speculation, induced by the forthcoming polls.
He said traditionally people with huge bank balances take their money out during periods of uncertainty and invest it on the black market by buying as much foreign currency as they can.
“This is done because they want a currency that is stable and secure compared to our own. This will in effect push dealers to hike the rate knowing that the demand for foreign currency will be high. All this is purely speculative,” Gundani said.
Such uncertainty has the effect of raising risk, leading to business and individuals delaying spending and investment until this uncertainty has been resolved after the elections.
International Crisis Group senior consultant Piers Pigou said the increase in prices and exchange rates was not good for Zanu PF ahead of the elections.
“Price increase and the increase in exchange rates, the government would prefer that this did not happen just ahead of the elections and I think they are trying to avoid this. It sends a bad message to the electorate,” said Pigou.
Confederation of Zimbabwe Retailers president Denford Mutashu said the pay rise has pushed demand for goods as the market now has an increase in RTGS money.
Because there is no correlation between supply and demand, as foreign currency is continuously in short supply, this is forcing retailers to go on the black market.
Mutashu said the market was simply responding to economic activity, which, unfortunately, has forced rates to go up as the South African rand has gone weaker compared to the United States dollar.
“The impact of the pay rise will definitely be felt this month because, as it is, the environment is not conducive for that…Before the pay increase, retailers had already been forced to go on the black market as the only alternative to source funds for their businesses,” said Mutashu.
“The high black market rates will definitely see retailers increasing their prices to match the situation and consumers will have to bear the costs,” he added.DailyNews