Inflation to Force Civil Servant's Salary Review
"Mounting ZWL depreciation and inflation have significantly reduced purchasing power, a scenario that is likely going to increase pressure on the government to review salaries again" - IH Securities
ZIMBABWE’S Treasury is facing enormous fiscal pressure to increase the salaries of the government’s nearly 300,000 public sector workers as the dramatic collapse of the domestic currency wipes out earnings, a new report by a local stockbroking firm has shown.
After holding fort during the last quarter of 2022 after the introduction of several interventionist measures, the Zimbabwe dollar has in recent months been on a free fall.
Numbers from the national statistical agency show that over 70% of all transactions are now being carried out in hard currency.
The government and some private sector firms have over the months adopted a hybrid salary payment structure of paying part of monthly earnings in Zimbabwe dollar and in United States dollar.
But the growing parallel premium of the greenback has piled pressure on the local unit, especially in an election year when fiscal spending is bound to surge.
In March 2023, the Treasury approved a 2023 Remuneration Framework for civil commissions, and the Parliament of Zimbabwe, and grant government pensioners. IH Securities foresees another salary review in the short-term.
“Mounting ZWL depreciation and inflation have significantly reduced purchasing power, a scenario that is likely going to increase pressure on the government to review salaries again.
“The ZWL portion of salaries was increased by 100%. However, with the local currency depreciating by 34% in April alone, we are likely going to witness another salary review in the short-term.
“The month of April saw resurgence of economic turbulence in the economy as the local currency continued to slump against the greenback.
The parallel market premium widened from nearly 65% at the beginning of the month to about 101% at the end of April as the RTGS posted a double-digit decline for the third straight month within the year.
“Notably, civil servants were granted a 100% increase in the ZWL portion of wages within the period whilst policy rate was revised downwards possibly hinting to increased money supply.
“The central bank has been proactive with management of liquidity in the economy, with the most recent introduction being gold backed digital tokens.”
Last week, Treasury announced a raft of measures to slow down rising inflation and rescue the beleaguered Zimbabwe dollar from collapse, but experts and sceptics warned the interventions may be inadequate.
The dramatic collapse of the local unit has sparked a wave of new price increases across the country, prompting cabinet to set up a committee to arrest the surges.
The country has also been has been hit by shortages of basic commodities in formal retail chains as the collapse of the local currency triggers hoarding and arbitrage opportunities.
Source| The NewsHawks