RBZ's Mangudya calls for salary cuts

HARARE - The Reserve Bank of Zimbabwe (RBZ) says there is need to slash salaries and high production costs across all sectors to restore the country’s competitiveness.

Central bank governor John Mangudya yesterday said the country’s loss of competitiveness can only be reversed through internal devaluation.

“Internal devaluation in Zimbabwe can be achieved through two possible approaches. The first approach would be for reduction in wages and salaries, accompanied by a similar reduction in the cost of finance and utility charges,” he said in his mid-term monetary policy statement.

“Once this is done, the country would need to find a comparator to benchmark with to ensure that costs would not increase again without being checked. The challenge of this approach is that it can lead to further reduction in aggregate demand and to depression and recession,” he added.

This comes as Zimbabwe, which is currently using the United States dollar and other multiple currencies as legal tender, although most of these are hedged against the greenback, has become non-competitive, as most of the major trading partners’ currencies have weakened.

However, the central bank boss’ proposal is not likely to get any takers from government after President Robert Mugabe this week — for the second time in two years —  reversed planned measures by Finance minister, Patrick Chinamasa, to cut down on public service expenditure by reducing civil servants’ salaries and retrenching some 20 000 employees.

Chinamasa announced the measures recently during his mid-term fiscal policy review that also proposed postponing annual bonuses for two years and downsizing allowances.

Faced with an angry civil service whose salaries have been repeatedly delayed, Information minister, Christopher Mushowe, claimed on Tuesday that Cabinet had opposed Chinamasa’s proposals prior to the presentation of his mid-term fiscal statement.

“For the record, the…proposals were tabled before Cabinet by the minister of Finance and Economic Development on July 12, 2016 as part of cost-cutting measures to facilitate economic recovery,” he said adding that after extensive deliberations, cost-cutting measures relating to the civil service were rejected and the position of Cabinet.

“The president and Cabinet want to assure the civil servants, the farmers and the public at large that these proposed measures are not friendly operative. It is hoped that this clarification puts to rest anxieties that may have arisen within civil service, the farming community and the public at large,” Mushowe added.

This was after Chinamasa had in his fiscal statement announced that government had embarked on a civil service restructuring exercise to ensure fiscal discipline by reducing employment costs by 60 percent, at a time almost 97 percent of revenue is going towards salaries.

Mangudya said the second approach, which also takes account of peculiarities in Zimbabwe, would be to achieve internal devaluation by a combination of improving the competitiveness of the country’s exports while simultaneously levelling the playing field between importers and domestic producers.

“This external rebalancing approach would incentivise foreign exchange earners, including all depositors, who are the generators of foreign currency whilst at the same time levying all payments of imports of goods and services,” he said.

“The intention of this approach would be to manage foreign exchange using market based mechanisms. There would be no charges on the use of plastic money and other electronic payment means. This approach would be neutral to net cash depositors.

“This will, therefore, be a market mechanism to support increased use of plastic money and for attracting foreign exchange deposits,” he added.

Market experts, however, said the downside risk of this second approach is that it would increase prices within the economy.

Comments (4)

mr bond note, cut your salary by more than half first and we will see if you are serious

Jatrophakufa - 17 September 2016

That aligns very well with economic fundamentals where wages and salaries are linked to production. Why should CEOs of ZESA, ZINWA and other state enterprises, permanent secretaries and ministers not have their salaries not cut by 50% when they have not declared a dividend for decades and their customer service is non-existent. Some of the CEOs, permanent secretaries and ministers should be fired for undermining the economic empowerment of Zimbabweans by colaborating with foreign NGOs. Also those big vehicles they demanded should be given to them for free and fuel and other allowances withdrawn. This will make them realise where the money comes from. Productivity and value of labour not grade or status determines how much one gets.

ADF - 17 September 2016

does that mean debts will also be slashed? imagine i owe council $500 ,then my salary is cut from $600 to $300...........

just saying - 20 September 2016

Noble idea. Cut salaries, council rates, ZESA tarrifs, rentals both residential and commercial and Zimbabwe will be back on track overnight. If the Governor's suggestion is ignored I suggest that politicians move in and prescribe controls before the situation reaches some form of a boiling point.

HR Manager - 20 September 2016

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