Zimbabwe says won't meet IMF target to cut public sector wage bill

by Reuters
Wednesday, 26 March 2014 12:34 GMT

* Zimbabwe wage bill at 70 pct of budget

* Chinamasa says IMF to re-open office this year

* Zimbabwe seeks Chinese investment in 1,200 MW power plant

By MacDonald Dzirutwe

HARARE, March 26 (Reuters) - Zimbabwe is not prepared to slash its public sector wage bill to meet debt-reduction plans agreed with the IMF because it will involve too many job cuts, the finance minister said on Wednesday.

The International Monetary Fund in January approved a six-month extension of a monitoring programme for Zimbabwe aimed at helping it to clear $10 billion in external debts and give it access to much-needed new international credit.

Part of the deal included cutting Zimbabwe's wage bill from 70 percent of the budget but this pledge will not be met, Finance Minister Patrick Chinamasa has told the IMF.

Economists recommend Zimbabwe bring spending on state wages to below 40 percent of its total budget.

"Addressing it overnight would mean very drastic measures which I indicated to them (IMF) I am not prepared to take. That would mean retrenchment of civil servants," Chinamasa said.

Zimbabwe, which is emerging from a decade of economic decline and hyperinflation, began the IMF-led, staff-monitored programme in June.

Cutting wages would allow Harare to free money to develop its failing infrastructure, including roads and power-generating plants, as well as social services like health and education.

The IMF will re-open an office in Zimbabwe this year, 10 years after it left. It did not immediately respond for comment.

Zimbabwe also agreed to strengthen corporate governance in banks, increase transparency in diamond mining and sales and amend its mining laws to encourage investment.

President Robert Mugabe's government is still behind the IMF plan but it will wait until its $11 billion economy grows and revenues increase before cutting salaries, Chinamasa added.

Chinamasa said last weekend that the government would pay workers their March salaries on Thursday, two days after the money was due. He did not give a reason for the delay and he declined on Wednesday to say if the money was available.

Delays in paying salaries raises questions over the state of government finances. Latest data shows the government in January missed its $278 million revenue target by $12 million.

The staff monitoring programme is a major step for Zimbabwe in normalizing ties with the IMF, which in 2003 suspended Harare's right to vote on IMF resolutions - a step towards expulsion from IMF membership - over policy differences with Mugabe and non-payment of arrears.

Zimbabwe's economy is struggling due to a lack of investment and closure of companies which complain of high wage and other costs as well as shortages of water and electricity.

Chinamasa had a meeting with China Power Investment Corp on Wednesday in an effort to persuade the Chinese company to build a 1,200 MW thermal power station at a cost of $2.2 billion. (Editing by Joe Brock and Susan Fenton)

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