Government must not curve in to forex salary demands.

Nevanji Munyaradzi Chiondegwa

I read with great trepidation the letter from the Zimbabwe National Union of School Heads to the Minister of Public Service, Labour and Social Welfare.

Their reference was a request for the restoration of salaries to pre-October 2018 levels. The figure they are demanding is USD540, a demand which they say is genuine and legitimate. I do not doubt the legitimacy of their demand nor the genuineness of it but I have said before and will say it again, civil servants must be patient and considerate.

It made me realise that, apart from not understanding Economics, the leaders of our schools are clueless as far as the policy thrust of the New Dispensation. It also made me realise that perhaps the policies are not being explained in a language that is grasped by the common populace. Maybe there is that lack of openness or lack of clarity that makes explanations hard to grasp.

Let me post here a view from a top fund manager on on the figure that civil servants are demanding.

Civil servants and other unions are demanding minimum salaries of between US$500 and US$550 a month, which they argue was what they earned before Finance Minister Mthuli Ncube began currency reforms in October 2018 that ended the 1:1 parity between the US dollar and the local currency. John Legat, CEO of Imara Asset Management, disagrees. Nobody earned that much then in real terms, and government and other employers must not fold to such demands.

“Rising prices are resulting in higher wage demands not just from the public sector unions but also within the private sector. It will be critically important though that real wages are contained. Demands that USD wages should return to October 2018 levels make little sense since wages at that time were not actually being paid in USD but in RTGS$. RTGS$ were worth 50% of a USD at that time. After the announcement of the introduction of USD nostro accounts in the MPS of October 2018, when Government first broke the illusion that an RTGS$ was a USD, the rate collapsed from 2 to 1 to 8 to 1.”

Government, Legat says, must “therefore not cave in to demands to restore USD wages back to September 2018 RTGS$ levels”

First and foremost, I agree with Mr Legat here that there is an illusion of a parity between USD and the pre-October 2018 RTGS. This parity did not exist and even the civil servants themselves know this and even went into the streets to buy forex when they needed it instead of just transacting using the RTGS$ of the time.

Now on to the other part that Legat raises, real wages must be contained. This is pf paramount importance. We are coming from a background of wreckless money printing and structural flaws which the Transitional Stabilisation Programme( TSP ) addressed. Chief among this was the bloated civil service and the civil service wage bill which took 95% of our national budget.

This cannot be repeated again and we cant go back to a scenario where the civil service takes up 95% of the national budget for consumption purposes only and no production. Paying such outrageous salaries is what got us to the flaws we had that TSP was addressing and we cannot and must not reverse the gains so far made by reverting back to a mirage of 1:1.

Paying civil servants who are not in any way producers of forex is a NO.it must never be supported by anyone in their right senses nor should anyone in their right senses demand same too. What will happen is a repeat of the same scenario we previously had of them starting from $100 in 2009 up to getting the outrageous $540 they are demanding now. It simply does not make sense.

It is sad that we have people who should be leading in explaining issues to the masses being the ones leading in making insensitive and unreasonable demands. If civil servants are to get even USD300 this very month, by end of April, the value of thar $300 will be similar to the value of $100 now. The Purchase Price Parity of the USD300 will fall to the equivalent of USD100 because of flawed fundamentals. If those fundamentals are not fixed and government curves in to the demands, then we are doomed as a country.

One may be tempted to question where the assumption comes from and I will tell them it is not an assumption at all. There was a time when a pint of beer was costing USD5 but the same can now be purchased for a dollar in Zimbabwea and its still overpriced. There was a tike when the salaries were at USD100, if the USD maintains value for their salaries and wages, how did the same wages move from USD100 to USD540 as they are claiming?

What will not be argued is, at the time they were getting $540, they were saying it is not enough and were demanding salaries in the region of $1800. This renders their argument farcical and untenable.

The one fact that our civil service providers must realise is, salaries are never enough and employers do not pay workers what the worker needs but what the employer can afford. Their hard work and effort is appreciated but their demands must be reasonable and within levels of acceptability not to want to tank the whole country for their singular satisfaction.

What we must realise is that if government pays its employees in forex, they will fail to withdraw the actual funds meaning a black market is then created where civil servants will transfer the contents of their bank accounts to holders of forex to get actual dollar notes. This will naturally create arbitrage and a trade in currency starts all over again thereby destroying the fundamentals that are being fixed.

As a country, the authorities must continue to focus on increasing production of raw materials, increasing manufacturing industry capacity, import substitution and expanding the tax base. There is a optimum production level that will stabilise prices. Once that is reached, the economics fundamentals play out on their own. The concept of demand and supply will match each other and we won’t need to worry about loss of value of income.

It must be understood that Zimbabwe’s national budget is at $4 billion annually for a reason. Zimbabwe cannot access external lines of credit and therefore all our needs are met by our taxes. It is folly then to pay civil servants who will only take their forex for shopping jaunts to neighbouring countries and import used Japanese cars in foreign currency. That is typically exporting not only our store of value but our taxes and jobs and thus collapsing the economy on ourselves.

Social services such as health care, water sanitation, water reticulation, agriculture will fold as we try and please civil servants by expending all of our resources towards them. Their demands will keep increasing until we are back to borrowing to pay them their salaries instead of borrowing for production.

I do not believe this administration is a foolish Administration. I do not think Professor Mthuli Ncube and Permanent Secretary George Guvamatanga are financially illiterate. If anything PS Guvamatanga has declared that civil servants must forget about salaries in foreign currency. I believe the Treasury Chief and the Accounting Officer are on par on this. Both of them have on many an occasion agreed on this. They intend to keep government spending within the budgeted range. They want to to address all the fundamentals and then gradually increase the budget and wage bill as the economy opens up.

For now, I would rather we farm, we mine, we open proper businesses and pay taxes. We also must create employment and of course focus on social amenities.

Salaries can be put on ice as we focus on preserving the value otherwise we will be back to the tears of not long ago.

So to our headmasters, understand, one cannot borrow to pay salaries, it simply is not common sense. Also remember, you were not really earning USD540 but far much less than that, most likely you are already earning a similar salary.

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