As more and more businesses try to avert foreign currency problems, US dollar pricing is gaining popularity. Import duty on vehicles and other selected goods is now payable in foreign currency. Some schools are keen to also introduce fees payments in foreign currency amid strong resistance from government. Soon, more businesses will be charging in foreign currency. But where will the general public get the forex? Calls for employees to be paid in foreign currency are increasing with each passing day. Are these calls justifiable? We look at this issue in detail.
Salaries in foreign currency
Some months ago when the bond note was still almost at par with the US dollar, no one was bothered whether they received the bond or US dollar in day to day transactions. Infact, there was a time when the two could be used interchangeably. Times have changed now. In US dollar terms, teachers believe they are earning a salary of just US $100. Smaller teachers’ unions like the Progressive Teachers Union of Zimbabwe (PTUZ) and the Amalgamated Rural Teacher Union of Zimbabwe (ARTUZ) have made their requests known in no uncertain terms. They are pushing for salaries in foreign currency. If government cannot pay them that way, they would rather have a salary increase on bond currency terms. Figures around bond $3 000 are being thrown around. This is around US $850. Soon after farmers and other exporters went on record demanding their proceeds in forex to be increased, bar talk is that even sex workers are demanding their dues in foreign currency. This reflects some underlying problems with our current environment. For now, government is only paying exporters in foreign currency. However, they are not getting the full amount in foreign currency. Some of it is being kept to cover pressing essentials, chief among them fuel and medicines which are in short supply in the country.
We have to look into the 2019 National Budget in order to find what government thinking is on these pressing issues. Titled “Austerity for Posterity” the budget is an attempt to cut on government expenditure and focus on revenue collection. To date, the attempts outlined in the budget have not reaped meaningful rewards. But it may be too early to judge the budget. Commenting on the budget, Former Finance Minister Tendai Biti says, “Even before we have passed the budget, the Minister has already undertaken to increase the salaries of civil servants by 10 percent. So that means the figures we already have are already out by 10 percent…the solution is not to give x percent of increases to civil servants. The solution is simply to pay them in US $ and re-dollarize the economy.” Tendai Biti calls the budget, “a load of confusion, contradictions and illegalities.” Specifically, he has attacked the imposing of duty in foreign currency when people are earning bond notes. He also said government is not allowed to take away exporters money and allocate it. While Mr Biti’s comments can be expected from the opposition corner, given the polarised nature of our political arena, we cannot sugar coat the effects of inflation on people’s earnings especially those people earning only the local currency. There is an urgent need to solve this challenge.
Are salaries in forex justifiable?
Never mind the need to be able to afford luxuries like vehicles, employees seem to have a strong case for being paid in foreign currency. Inflation has eroded the value of the local pseudo-currency. In bond note terms, prices have more than doubled since the beginning of October 2018. In view of that alone, some kind of cost of living adjustment is needed for employees. Unfortunately, the fictitious belief that the bond and the US dollar are at par seems to be a useful and plausible excuse for government to maintain the status quo as far as salaries are concerned. Another painful truth is the fact that basic commodities are in short supply countrywide. Many have to resort to the 2008 strategy of going to purchase goods across our borders where they are cheaper. The only place to get foreign currency to do this at the moment is the Reserve Bank of Zimbabwe (RBZ) but there is not enough forex to meet demand. The black market is illegal. The only other legal source of forex would be if salaries are paid in forex.
Government does not agree
Finance and Economic Development Minister Professor Mthuli Ncube has already announced that payment of salaries in foreign currency is not feasible for government. The argument is that government does not have the forex. In other words, even after collecting import duty in forex and taking some of the proceeds from exporters, this is not enough to be able to cover salaries. For many neutrals, it seems like government is not managing its forex efficiently. If we look at the fuel situation for example, government allocates forex for fuel at a rate of 1:1 and asks fuel dealers to sell the same for around bond $1.41 per litre which is 40 cents in US dollar terms. With South Africa and other neighbouring countries selling their fuel for about US $1 per litre, this means government is over subsidising fuel traders by giving them forex for next to nothing. One recommendation would be to allow market forces to determine the exchange rate. This would leave government selling forex at a realistic exchange rate thereby having enough to take care of other business.
While the debate on whether or not salaries should be paid in forex rages on, the reality is that action on the matter is required sooner rather than later. The discrepancy between salaries and prices is too glaring to ignore, especially for civil servants.