Faced with an inexorable economic meltdown and concomitant dwindling of revenues due to a shrinking tax base amid a wave of company closures and massive job losses, government is set to retrench its bloated workforce to reduce the unsustainable wage bill from over 80% of expenditure to below 40%.
The cash-strapped government, struggling with constantly dropping revenues, is also moving to review benefits of its employees in a bid to cut unmaintainable costs.
As a result, government has cautiously welcomed the controversial Supreme Court ruling which confirms employers have a right like workers to retrench employees on three months notices without paying packages.
Government has no money to pay severance packages and wants to use the same opportunity as employers, who have retrenched about 9 000 in two weeks, to throw workers onto the streets.
Presenting his mid-term fiscal policy review statement in parliament in Harare yesterday, Finance minister Patrick Chinamasa said government has no choice but to retrench — even if it ironically promised to create 2,2 million jobs by 2018 under its economic blueprint ZimAsset — as the economy shrinks while revenues plunge.
“Hence, cabinet has given a directive to the minister responsible for the Public Service, in conjunction with the minister responsible for Finance, to urgently propose remedial measures to gradually bring down the share of the wage bill in the budget from over 75% to under 40%,” Chinamasa said.
“Accordingly, as the responsible ministers, we have undertaken an extensive exercise engaging the various line ministries, benefitting from the technical support and coordination of the Public Service Commission, the Judicial Services Commission and the Health Services Board.”
The move is widely seen as a painful admission of failure by a government which made impractical promises before elections. The economy has been sinking quicker since the 2013 elections.
Chinamasa said government would identify all the areas with scope for savings through the removal of duplications and overlaps, as well as streamlining roles and functions, among other measures. Departments and institutions with potential capacity of generating own resources have also been engaged.
“Significant progress over the exercise to develop measures to rationalise the wage bill has been made, with the Public Service Commission having also completed the physical head count for all civil servants as part of the staff audit,” he said. “Cabinet will be considering the full package of necessary proposals in the next couple of weeks.”
Government is anxious the wage bill is currently gobbling about 83,4% of revenues, at the expense of capital expenditures and social service delivery.
The situation has now become unmanageable. Overall expenditures on employment costs during the first half of 2015 were US$1,54 billion out of a total US$2,07 billion revenues. Recurrent expenditure chewed up a staggering 92,5% of government revenue in 2014, with wages accounting for 81,5%, leaving just 7% for crucial capital projects.
Chinamasa said total expenditures for 2015 had been revised downwards from US$4,115 billion to US$4 billion due to dwindling revenues. He also revised revenue projections downwards to US$3,6 billion from US$3,9 billion.
Figures show cumulative revenue collections for the period January to June 2015 amounted to US$1,7 billion against a target of US$1,9 billion, while expenditures amounted to US$2,1 billion.
Government has been under intense pressure from within and outside to embark on public service reforms to reduce the wage bill. The IMF says because of its bloated wage bill, Zimbabwe spends around 35% of GDP on salaries compared to 27% on average for Africa and 25% for Asia.
Former Finance minister Tendai Biti said yesterday Chinamasa’s fiscal review was “unimaginative and dull”. He said the statement was more important for what the minister did not say rather than what he said.
“What he didn’t say is GDP growth will further dip in 2015 and even worsen in 2016 — showing the economy is now deep in technical recession — or that unemployment will get worse because of quickening company closures exacerbated by the Supreme Court ruling (which says that employers can lawfully terminate workers’ contracts on three months’ notice without paying retrenchment packages). He didn’t tell us about the retrenchment bloodbath and that revenues will shrink further; meaning government and country will not afford to meet their obligations, including the wage bill,” said Biti. “He should also have been more forthright in telling it like it is and even be courageous enough to say ‘we have failed’ and as a result ‘we are going to resign’.”
Chinamasa said the overall outlay incurred on employment costs in the first half of 2015 was US$1,54 billion, reflecting, on one hand, the benefits of a static pay structure and on the other hand, deferred commitments. “A static pay structure, since January 2014, has maintained government’s employment costs obligations at levels of around US$120 million per month,” he said.
“However, in the first half of 2015, the national budget incurred expenditure amounting to around US$158.4 million in support of the 2014 13th cheque payments, as well as salary-based employee payments to service providers.
“Budgetary cash flow challenges experienced over the first half of the year have militated against the timely payment of some of our employment cost obligations in line with targeted payment dates. In this regard, the outturn of US$1,54 billion does not embrace expenditure commitments of around US$181,6 million, which remained outstanding at the end of June 2015.”
Against this backdrop, Chinamasa said he had no choice but to engage in budget rationalisation.
“In the absence of additional measures to create capacity of the budget to finance priority projects and programmes, non-discretionary expenditures, such as the wage bill and loan repayments, will continue to crowd out development expenditures,” he said.
“Given the revised budget framework for 2015, it remains necessary that we align our expenditures within the expected resource envelope.”