For Zimbabwe’s profligate government, money does grow on trees

Mar 07, 2017

President Robert Mugabe’s government announced a late Monday afternoon deal to hand its employees $180 million in 2016 bonuses, only just managing to head off a planned strike.

With an election due next year, the Mugabe government is keen to keep a lid on passions, at whatever cost.

As news of the bonus deal broke, statutory pension fund National Social Security Authority (NSSA) announced the government had given it treasury bills worth $181 million, primarily to clear arrears for the three years when the state could not remit its contributions to the fund as an employer. It is no secret that government has been struggling to meet payroll and, equally, not surprising that it has defaulted on its employees’ pension contributions and medical insurance.

Last year, it took government six months to eventually pay off all 2015 government bonuses. Even so, this came at a price as government defaulted on the June payroll, triggering a civil servants’ strike that was seized upon by some anti-government activists to create the biggest protest against Mugabe in recent years.

The situation is similar this year, with payments staggered over five months to August. There are compelling arguments against the payment of automatic bonuses to a bloated workforce of a government President Robert Mugabewhose fiscal position is, at best, fragile. But that’s not an argument a wasteful government which splurges on luxury cars and avoidable foreign travel can make.

Finance Minister Patrick Chinamasa, who has fought a losing battle to at least suspend the bonuses over the past two years, put on a brave face on Monday as he told reporters “government will certainly mobilise the resources.”

Recent history points to one obvious source of funding: paper. Government paper.

Money on trees. Literally.

As it has done with reckless abandon since 2012, government will issue treasury bills, mop up cash from the domestic financial market and crowd out the productive sector, as Chinamasa himself admitted during his 2016 mid-term budget statement. At the time, the Treasury chief had also warned about a runaway budget deficit as government was a third into $1.2 billion budget deficit for the year.

For a government which had virtually no domestic debt between 2009 and 2011, the explosion of local borrowings from around $300 million in 2012 to $3.7 billion by October 2016 is alarming.

The bulk of the debt is in the form of government paper which, according to central bank governor John Mangudya, currently stands at $2.1 billion. Analysts have criticised the government for going into overdrive with its treasury bill issues, worsening a liquidity crisis that has hobbled the economy.

Not that government will listen to any advice to curb its appetite to spend, or institute the necessary reforms that will see it moving away from the current ridiculous situation where 97 cents out of every dollar the state raises go towards employment costs. Last year, Mugabe’s Cabinet publicly rebuked Chinamasa for proposing 25,000 job cuts and suspending bonuses among other cost-reduction measures which he said would save $355 million over two years.

As Zimbabwe heads to next year’s election, government’s instinct will be to spend more, not less. And, over the years, Mugabe has shown that he is not averse to making bold, costly promises to segments of the electorate he views integral to his electoral ambitions. But there are limits to kicking the can down the road each time you’re faced with difficult decisions.

This is why Zimbabwe’s current path to financial ruin is worryingly familiar.

The economic meltdown which reached its peak in 2008 was the outcome of a series of poor decisions — price controls, unrestrained money printing — by a government which insists on turning economic orthodoxy on its head.

 

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