Although facing unrest amid rapidly rising inflation,
President Emerson Mnangagwa, has approved a 50% increase in civil servants’
salaries in local currency and also awarded them a US$75 Covid-19 allowance
starting this month.
This came as health sector workers staged a demonstration at
one of the biggest referral hospitals in Harare, demanding remuneration in
foreign currency to cope with the ever-rising cost of living with the
Zimbabwean dollar.
The government last week dispelled reports that some in the
security services were plotting to overthrow Mnangagwa, who replaced former
leader Robert Mugabe after a November 2017 coup. Since taking over, Mnangagwa
has presided over a marked decline in economic productivity.
Finance Minister Mthuli Ncube, who has faced mounting
pressure to float the fixed exchange rate, said on Wednesday: “Zimbabwe civil
servants salaries adjusted by 50% with immediate effect. In addition, a
non-taxable Covid-19 allowance of US$75 per month [will be implemented] for
civil servants whilst pensioners will get US$30 per month.”
The US dollar allowances will be paid for three months,
while the civil servants have now been asked to open Foreign Currency Accounts
with local finance institutions.
Treasury said in a separate statement that the Reserve Bank
of Zimbabwe is “urgently addressing the domestic payments infrastructure in
light of the increased need for transactability”.
The introduction of the US dollar allowances for the
Zimbabwean civil service could reduce demand for Zimbabwe’s new local bank
notes. Some traders are already rejecting the ZWL2.00 and ZWL5.00 notes.
Some economic analysts said the government allocating dollar
allowances meant the market had already effectively re-dollarised. However,
there are also concerns that while the latest fiscal move will breathe some
liquidity into the economy, it will also stretch government coffers, and
government could face limited supplies of foreign currency.
Statista noted earlier this month that in 2017, government
expenditure in Zimbabwe amounted to about 22.48% of the country’s gross
domestic product, with the figure now likely to increase.
Moreover, the major sources of foreign currency are under
strain, with major gold producer RioZim saying it has shelved gold production
because of foreign currency shortages, while some tobacco farmers are
withholding their crop.
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