GOVERNMENT may be heading for a shutdown after it announced that it cannot guarantee pay dates for the civil service as the cash crunch bites deeper and with no solution in sight.
BY NDAMU SANDU
Deputy Minister of Public Service, Labour and Social Welfare Tongai Muzenda told Senate last week that government won’t guarantee any fixed pay dates.
“We do not want to make false promises as the (Civil Service) Commission does not put the dates on the pay slips and that is going to be the case for some time until our economy has stabilised,” he said.
Analysts yesterday said that the admission by government poses a serious threat to the economy considering that salaries take a huge chunk of the recurrent expenditure.
“We are in shutdown,” an analyst said. “The budget is 90% recurrent and the bulk of that is in salaries”.
The last country to experience a government shutdown was the United States after Congress failed to enact legislation appropriating funds for fiscal year 2014. It lasted for 16 days.
During the US shutdown at least 800 000 federal employees were indefinitely furloughed (leave of absence) and 1,3 million reported for work without known payment dates.
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Analysts say the civil service was the most secure borrower through Salaries Services Bureau and a payslip was a blank cheque to micro credit, which is driving the informal economy.
“That has been decimated. Once that is not there, banks won’t be able to lend. It means the lending platform has come to a halt,” an analyst said.
The civil service enjoys salary-based loans on the basis that government pays salaries on time.
Banks have stopped lending to companies due to rising defaults with statistics from the central bank showing that the ratio of non-performing loans to total loans had increased to 16,96% as at March 31 2014, up from 15,92%.
An NPL is when payments of interest and principal are past due by 90 days or more, or at least 90 days of interest payments have been capitalised, refinanced or delayed by agreement.
An executive with a commercial bank said measurement of economic policies was not on the basis of its nobility or objective but on the consequences.
“The consequence of announcing that there is no fixed date [for civil servants’ salaries] is that the economy has shut down,” he said.
Analysts say the only symbolism which was giving the economy a semblance of life was the fact that civil servants were being paid.
Government is the largest single employer and had until now provided fixed pay dates for its workers while other companies were defaulting.
“That symbolism has now come to an end by the removal of fixed dates and signifies government’s acceptance of default,” he said. American actor and comedian Larry Fine once remarked that “the pain goes away on payday”, a feat that was only enjoyed by the civil service because the money was coming on time.
For the majority of Zimbabwean workforce that pain has become a permanent feature as payday becomes a moving target. For the unlucky ones, it has appeared only in dreams as companies took a battering from the harsh prevailing economic environment.
Statistics from the Zimbabwe Congress of Trade Unions (ZCTU) shows that 15 companies retrenched 2 491 in the first half of the year.
The Employers’ Confederation of Zimbabwe (EMCOZ) attributed the challenges in paying salaries on time to “a shortage of cash in the economy for various reasons which include minimum injection of new cash into the economy to grow the formal sector and inefficiencies inherent in an economic environment that is growing very slowly with some companies closing”.
“What is then happening is that producers of goods are having difficulties collecting cash from their sales and their suppliers are always sitting at their gates wanting to be paid for services rendered,” EMCOZ president Jack Murehwa said.
“When the company eventually gets a bit of cash from the overdue debtors, it then has to prioritise and decide how much goes to service providers, inputs, maintenance, salaries and many other costs.”
He said as a result of the limited cash, the company has to decide where to apply the cash — net salaries, pension, PAYE and other levies to be paid.
“As would be expected, in most cases, one or more of the commitments will suffer and obviously in instances where the extent of the unfunded commitments continues to grow, the formal business winds up,” he said.
Murehwa said under the current circumstances, employees who are still getting their salaries, although delayed, are in fact “in a better shape compared to those who have stopped thinking of ever getting a salary because the operation wound up or is as good as non-existent”.
Labour and Economic Development Research Institute of Zimbabwe director Godfrey Kanyenze said the private sector was a victim of the environment and government has to address the doing business aspect to help companies.
“How do you compete when you don’t have electricity? Government should address the cost of capital through re-engagement with multilaterals because no one will bring the money cheap, they demand a premium,” Kanyenze said.
Kanyenze said the economy was regressing with deindustrialisation or informalisation. He said 84% of the economy was now informal.
In his 2014 national budget presentation, Finance minister Patrick Chinamasa said the old economy was dead and a new one, based on the informal sector, had been born, urging financial institutions to cater for the small to medium sized enterprises.
But Kanyenze said informality was problematic as it did not contribute to taxes.
“You can’t celebrate informality. Everything informal is hidden. Much of the work is organised around sustenance,” Kanyenze said. “There is nothing to celebrate unless there is a transition to formality.”
Kanyenze said the situation was dire and government alone could not resolve the crisis. He said it was now necessary to have a convergence of minds among all stakeholders so that everybody could put their hands on the plough.
Figures from the national statistical agency, Zimstat, show that imports in the first half of the year have been reduced to US$2,99 billion from US$3,92 billion in the comparable period last year. Exports went down to US$1,22 billion from US$1,54 billion.
In the wake of collapsing companies, analysts say the low imports signify that the liquidity crunch is biting.
They say government has to create more exports which are the fuel that drives the economy in the absence of foreign direct investment, lines of credit and balance of payment support.
“If you take the jet up without enough fuel, it will crash,” a commercial lawyer said.
