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ZIMBABWEAN Finance Minister Patrick Chinamasa – faced with worsening growth problems characterised by a high public wage bill, declining investment and struggling businesses with limited revenue contributions to the fiscus – probably thought he had tamed Zimbabwe’s big elephant in the room: limited revenue lines and surging public expenditure.
He announced plans to reduce the number of government workers by 25 000 and skip their annual bonuses this year, in addition to ministers taking a salary cut and shutting down some embassies.
It was the masterstroke that everybody knew could help manage public expenditure which now accounts for 97% of government revenues, leaving hardly enough for infrastructure and development investment.
But fast forward only five days later and Chinamasa would receive bad news to his plans. Information Minister Christopher Mushohwe announced that President Robert Mugabe and his cabinet, in which Chinamasa serves, had not approved the new measures, adding there would be no job cuts and that bonuses would be paid.
READ: Zim drops plan for job and bonus cuts
The civil servants had already expressed dismay at the measures, with leaders of the government workers’ union saying they were not acceptable as they would worsen workers’ plight. Civil servants are an important cog in Mugabe’s machinery and it seems they have to be appeased at whatever cost.
A Zimbabwean newspaper on Thursday carried a headline 'Dead man walking: Chinamasa in trouble' that heightened the feeling in Zimbabwe at the moment over the conflicting positions. And Chinamasa is likely to toe the line and will have to find the money, by hook or by crook as usual, to maintain the public jobs and pay them their thirteenth cheque.
But this about-turn was not the first time; it happened before in 2015, with Mugabe rapping Chinamasa on the knuckles after he had announced that there would be no bonuses. Mugabe said in a speech in April 2015 that bonuses – which have become a big drain on the fiscus – had become the civil servants’ “right”.
Zimbabwe is re-engaging the international community as well as financiers such as the World Bank and the International Monetary Fund for fresh funding. The IMF has asked Zimbabwe to carry out economic reforms that could help it stand a better chance to get fresh capital from financiers.
Among the IMF's demands are reforms in the civil service, which gobbles up a great deal of treasury’s revenues.
Informal economy makes tax collection difficult
It has become even worse at the moment, as revenue inflows are only a trickle owing to smuggling and declining contributions by crisis-hit companies. The economy has also become mostly informal, making it difficult for the state to collect tax revenues.
The about-turn by Mugabe’s cabinet on plans to cut down on government expenditure will worsen the situation for Zimbabwe. There is policy uncertainty in Mugabe’s government with its incoherence, and this sends the wrong signals to international financiers and investors.
All the money that Zimbabwe could get as bail-out will be gobbled up by salaries for civil servants, and it is unlikely that any new financing will come Zimbabwe’s way as long as things stand as they are. As a result, the government is likely to resort to tightening the screws on the few remaining companies for more taxes and there is likely to be a stiffer tax regime in the 2017 budget year.
The government may also fail to pay salaries for its workers and this could raise unrest levels, leading to protests such as Zimbabwe has witnessed in the past few months. This will ground the economy and impact productivity.
But Mugabe, faced with an election in 2018, just has to be popular with the people. In choosing to play to the gallery, he is ensuring that he remains the favourite and also maintains the loyalty the government workers have always shown for his ruling Zanu PF party.
Soldiers, police, teachers, health workers and others constitute a great number of the civil service and maintaining their loyalty is key for Mugabe and his Zanu PF party.
* Memory Mataranyika is a Zimbabwean correspondent for Fin24. Opinions expressed are her own.
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