Mthuli’s wage dilemma: Workers want more pay, but IMF warns against salary hikes, saying govt wage bill now ‘sustainable’

Zimbabwe IMF
Inflation poser: Ncube under pressure as prices rise

Ahead of a fresh round of tough wage talks between the Zimbabwe government and its workers, the IMF has cautioned against increasing civil servants’ salaries any further.

It is a sign of the dilemma Finance Minister Mthuli Ncube faces; increase wages and fall foul of the IMF Staff Monitored Programme, key to his debt clearance plan, or ignore the demands of workers whose wages have been eroded by inflation, risking strikes and more unrest.

The IMF’s Zimbabwe representative, Patrick Imam, says the wage bill was now on a “sustainable footing”. Further hikes, if not matched with growth, would be inflationary, he said.

“The government wage bill is now on a sustainable footing. Looking ahead, it is crucial that public wage growth be aligned with economic growth and government revenue,” Imam told Bloomberg on Monday.

Ncube has been working to contain the wage bill. In 2017, government was spending 90.6% of all the money it raised on employment costs. Salaries have previously accounted for the bulk of government spending.

Wages used to eat up to 90% of government revenues, but this is expected to fall to 70.9% this year. (Treasury data)
Employment costs now account for 46% of total spending (Treasury data)

However, while he would win IMF praise for however, says a wage hike for government workers was now necessary.

“What people are feeling is really wage compression,” he said last week. “Prices adjusted instantly to the exchange rate, but wages have been too slow to catch up with the adjustment. The issue is about wage adjustment and I’m a big champion of wage adjustment.”

Ncube has so far cut 3,000 workers – mostly ZANU-PF’s aligned youth offices – from the payroll, but there is little room left to make any further cuts. Both the IMF and the government say that more health workers and teachers will be needed in the next years.

Workers’ unrest

Doctors have given government a three-week ultimatum to increase salaries or face another strike. Separately, the Apex Council, which represents civil service unions, demanded fresh talks with the government over pay.

“The government cannot bury its head in the sand and pretend that the incapacitation it tried to address with the cushioning allowance will somehow go away when inflation has continued to ravage incomes,” Apex chairperson Cecilia Alexander said in a letter.

Labour Minister Sekai Nzenza said at the weekend that the government is due to meet unions shortly, although she gave no date.

Ncube’s government has implemented harsh austerity measures including regular hikes to fuel prices in a bid to comply with an IMF staff-monitored programme seen as a precursor to getting the debt relief that is needed to restore an economy that has been stagnant for two decades.

IMF programme

The IMF programme is due to end in March with its first review scheduled for September.

“The staff-monitored programme is also intended to assist in resolving the long-standing arrears to external creditors and facilitate re-engagement with the international community,” Imam said.

“Given the recent history of Zimbabwe, in particular the fact that the country has arrears to other international organisations, as well as bilateral arrears, the fund is not yet in a position to financially support the country.”

Since the start of the year, Ncube has granted several wage adjustments and allowances, but these have not kept pace with inflation, last measured officially at 175.66%.

In April, Ncube spent an additional Z$400 million on a cost of living adjustment, Z$63 million on a “cushioning allowance” and Z$133 million for pensions. There was a further allowance spend of Z$143 million, and in his supplementary budget issued earlier this month, Ncube said all this spending would move employment costs for the year from Z$4.1 billion to Z$5.9 billion.