Zimbabwe's Wages Pose Inflation Risk: IMF

In a statement at the end of a mission visit last week, the IMF also urged swift action by the government to weed out ghost workers from its payroll.

The plea comes in the wake of data last month showing Zimbabwe’s annual inflation rate accelerated to 4.8 percent in April from 3.5 percent in March.

Hyper-inflation was the hallmark of the country’s economic collapse, before a power-sharing government set up last year by bitter rivals President Robert Mugabe and Prime Minister Morgan Tsvangirai stabilised the economy.

The unity government, among other measures, scrapped the worthless Zimbabwe dollar and replaced it with multiple currencies.

“The authorities are advised to complete the on-going government payroll audit and start eliminating ghost workers, while attaching greater priority to social and development programs,” mission chief Vitaliy Kramarenko said.

“Against the background of a recent pickup in inflation and rising concerns about competitiveness, wage restraint is needed in both the private and public sectors.”

Kramarenko also said in order to sustain the recovery, the cash budget deficit needed to be limited to about 2.5 percent of gross domestic product in 2010.

He said the IMF would continue to work with Zimbabwean authorities on key economic policy issues and provide targeted technical assistance. 

“Improving the timeliness and quality of data reporting and making further progress in economic policies would help to move toward a staff monitored program, which is the stepping stone to an IMF financial arrangement and debt relief,” said Kramarenko.

Despite the formation of the unity government, Zimbabwe has struggled to win donor support. Private capital inflows have declined over worries about a government scheme to force foreign-owned firms to sell majority stakes to local people.

Mugabe’s chaotic land reform program, which forced many farmers off their land and destroyed Zimbabwe’s once vibrant agricultural sector, is still fresh in investors’ mind.

“It is also important to step up efforts in containing risks in the banking system, and to improve the business climate, in particular with respect to property rights,” said Kramarenko. Reuters