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Harare – Zimbabwe will no longer be making bonus payments for its civil servants as the economy - hard hit by liquidity challenges and companies closing down - declines further.
Finance Minister Patrick Chinamasa said on Monday evening that the decision to scrap the famous 13th cheque for civil servants will only be reviewed in 2017, ahead of elections slated for 2018.
Zimbabwe spends most of its budget - about 82% - on salary payments and already owes some of its public workers 2014 bonuses. The Reserve Bank of Zimbabwe has already advised against salary increases.
"Conditions are such that we need to be realistic about our situation and try to live within our means. Our industry needs breathing space and heavily taxing the productive sector is not sustainable," said Chinamasa.
READ: Zim calls for wage freeze as union conflict looms
As a result of this, he said the government had decided against civil servants’ bonus payments. The money saved from the shelved bonus payments will now be channelled towards high impact public sector investment projects.
“Government has decided to suspend bonus payments to the civil servants in 2015 and 2016, and the situation will be reviewed in 2017 in the event that we are able to build enough capacity,” Chinamasa added.
Zimbabwe’s economy, which has continued to sink into deflation, is battling curtailed productivity, with industrial capacity utilisation sagging down to below 40% in the past year, according to the Confederation of Zimbabwe Industries.
READ: Zim living conditions worsen - survey
Persistently lower commodity prices have also not helped the country’s economy as the mining sector is experiencing low earnings despite marginal increases in production of some minerals such as gold.
Analysts told Fin24 on Monday that the government needs to take more tough and unpopular measures to help the economy grow by channelling resources towards more important public investment and infrastructure development sectors.
“It’s going to take some decision making and this is what should have happened long back. The IMF has repeatedly advised against the bloated wage bill and government expenditure and the state bill should be lowered further because there is no productivity happening anywhere, both in private and public sector to warranty such expenditure,” said an economist at a local bank.
Chinamasa also admitted that a high tax regime was not conducive for a thriving economy. He said higher taxes would have negative effects for the economy and foreign direct investment.
“I can’t continue relying on discretionary tax policy in order to generate revenue. I am sure that we are all aware of the negative effects of a high tax regime on economic activities,” Chinamasa added.
