Mukudzei Chingwere-Herald Reporter
THE recent 50 percent salary hike for civil servants will increase purchasing power but will not result in price increases as the auctions govern the cost of foreign currency used for productive purposes and other inflationary pressures are receding, Finance and Economic Development Minister Professor Mthuli Ncube said.
Retailers agreed, saying the only effect they saw from the increase was better business as a very large block of consumers now had more money to spend.
The Consumer Protection Commission cannot see the increase triggering price rises and agrees with the retailers that the measure will be totally positive in increasing business.
Responding to speculation that prices were north-bound following a 50 percent salary increment for Government workers, Prof Ncube disagreed.
The exchange rate is a major factor governing inflation but he said the official market constituting around 95 percent of foreign currency trading in the country is stable.
The far smaller black market was therefore not a worrying factor when looking at inflationary pressures.
“We as Government follow the official exchange rate. This is the exchange rate that is coming out of the auction process, which is a free market. That easily accounts for 95 percent of all the foreign currency trading in the economy. So we cannot base our analysis on the alternative markets.
“When we make decisions about supporting our hard-working civil servants, we follow inflation. You have seen that inflation is dropping on both a year-on-year and month-on-month basis and we expect that by year-end it will be anywhere between 25 to 35 percent year-on-year with month-on-month below three percent.
“Wages and salaries anywhere in the world are set on the back of inflationary expectations, which are headed downwards in Zimbabwe. Inflation is what erodes salaries. That is what you are confronted with in the shops. So it is about inflation.
“Inflation is going down. It is going the right way. It shows that our policies are working. The exchange rate is stable, and the companies will tell you that they are now planning better because there is less price instability and business is booming and we are also positive about economic recovery this year.”
In an earlier interview, Prof Ncube talked about the newly introduced $50 note, assuring that it will not have any negative impact on the economy.
He said it has no impact, explaining that when the authorities introduce notes on the market, they cancel the equivalent held in the RTGS system at the Reserve Bank so any notes entering the market do not increase money supply.
“It has no impact. The way we introduce the note is you swap your RTGS for cash, and the RTGS once we take it at the Reserve Bank we then cancel it. We actually remove it and then substitute it.
“So there is a zero net effect on the value of the currency, and the currency remains stable and protected. It has zero impact on inflation,” said Prof Ncube.
The Confederation of Zimbabwe Retailers (CZR) president Mr Denford Mutashu said shop owners were not anticipating any inflationary effect from the recent salary increases.
“We anticipate that it will increase effective demand on the market. Civil servants account for about 60 percent of the customers and if they are well paid it will improve the economic demand. We do not anticipate that the latest increment will have any inflationary effect. The market has been struggling to match the current pricing regime.
“As business, we welcome the civil servants’ pay rise, and like I said we do not expect it to have any inflationary effect,” said Mr Mutashu.
Consumer Protection Commission chairperson Dr Mthokozisi Nkosi weighed in saying they anticipate an improved purchasing power of the civil service.
“Over the years, we have seen a trend where each time there is an increment on the salary of civil servants, it is followed by an unjustified general price increase. But now we expect that consumers can get a breathing space. The measures put in place by Government seem to be water tight and are not prone to abuse.
“We want the general public and the civil servants in particular to have more purchasing power through increased disposable income. This will increase aggregate demand which will trigger and stimulate economic activity,” said Dr Nkosi.