Mugabe paying salaries using debt

Zimbabwe is selling bills and bonds to pay a ballooning wage bill as the economic growth outlook dims and deflation takes hold, a year after President Robert Mugabe extended more than three decades in office.

The southern African nation of 13 million people raised $2 million in July through private placements of six-month Treasury bills carrying a rate of 9.5 percent, according to an official with knowledge of the matter. Commercial banks held $261.9 million of bills as of June, more than double the $118 million in December and $75.5 million a year earlier, according to the Reserve Bank of Zimbabwe's monthly review for June.

The recovery from a decade-long recession is wavering as factories shut and households come under pressure because of delayed salary payments by the government and job cuts by private companies. Growth, which averaged 10 percent between 2009 and 2012, is forecast at 3.1 percent this year, according to the International Monetary Fund. Consumer prices fell for five straight months through June, government data show.

"Zimbabwe's push to sell local debt stems from the government's inability to meet growing wage demands," Charles Laurie, head of Africa at Bath, U.K.-based risk advisory Maplecroft, said in an e-mailed response to questions on Aug. 1. "Increasing issuance of Treasury bills and bonds to pay salaries signals a weakening fiscal condition."

Land Reforms

The IMF projects Zimbabwe will pay $2.22 billion for wages and salaries this year, out of total expenditure and net lending of $4.3 billion. Spending on salaries is forecast to increase each year until at least 2019.

Mugabe, who led Zimbabwe's fight against white-minority rule, has run the country since 1980. Land reforms, which saw white-owned farms seized sometimes violently, led to a drop in agriculture output that curbed growth. The country abandoned its dollar in 2009, bringing in currencies including the South African rand and U.S. dollar to stem hyperinflation.

Zimbabwe will decide "sector by sector" what percentage of foreign companies should be ceded through the country's indigenization plans to blacks, Finance Minister Patrick Chinamasa said on April 22. Willard Manungo, secretary for finance at the ministry, was in a meeting and couldn't comment, his assistant said yesterday by phone.

Revenue Missed

The country's main stocks gauge pared its loss this year to 5.8 percent, while spot prices for platinum gained 7 percent in 2014 to $1,466.01 an ounce by 11 a.m. in Harare. Zimbabwe has the world's biggest reserves of the metal after neighboring South Africa.

"Investors will remain relatively cautious as issues and uncertainties over Robert Mugabe's exit remain, no clear direction over indigenization prevails and growth prospects continue to be downgraded," Thea Fourie, Pretoria-based senior economist for sub-Saharan Africa at risk-analysis company IHS Global Insight, said in an e-mailed response to questions Aug. 5. "Political issues remain the biggest obstacle to investment flows."

Mugabe, 90, may be succeeded by Vice President Joice Mujuru, a "relatively pragmatic" leader who could usher in investor-friendly policies, New York-based Eurasia Group said in a July 29 note.

Zimbabwe also sold debt this year to pay back tobacco farmers, whose earnings were retained between 2006 and 2008 to raise foreign currency. The country issued $200 million of three- to five-year bonds last month to banks, according to a person who asked not to be identified because the sale hasn't been made public. Reserves are low, projected by the IMF at $464 million by year-end, or less than a month of imports. Revenue missed estimates in the first quarter, according to the Treasury.

"Any debt accumulation, especially if you are living from hand to mouth, is not sustainable," Nhlahla Mpofu, an economist at investment group 4Cast Research, said by phone from Bulawayo, Zimbabwe, on July 31.

"It however helps to buy time hoping revenues will soon improve."