HARARE,– Zimbabwe’s faltering economy has no room for salary increases as they would further erode competitiveness and hold back recovery, the central bank governor John Mangudya said on Wednesday, pushing for price cuts to stimulate demand and economic activity.

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Government expects 3.2 percent gross domestic product (GDP) growth this year but Mangudya painted a bleak picture of the country’s economy and called for alignment of local labour laws to international best practices which could boost productivity.

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“Given the lack of competiveness and its negative effects on the economy, we do not see any room for wage and salary increases within the national economy,” said Mangudya in a Monetary Policy statement emailed to media houses on Wednesday.

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“Instead, the prevailing circumstances call for a downward adjustment in the prices of goods and services in order to promote competitiveness and ultimately for the recovery of the economy. Further wage and salary increases would only serve to choke the economy.”

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Zimbabwe’s manufacturing capacity utilisation – a measure of the extent of factories’ use of their installed productive potential – is around 36 percent, according to the Confederation of Zimbabwe Industries (CZI) and Mangudya said lower prices would induce more demand, leading to the rebalancing of the economy.

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“Instead of addressing the welfare of consumers (including workers) from the demand side of the equation i.e. by increasing wages and salaries, I am advocating to address the uncompetitiveness challenge from a supply side of the equation i.e. for the reduction in prices to increase the purchasing power of the US$,” he said.

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“Hence, apart from the inability of the economy to carry additional demand burden or load, I am convinced that the economy and consumers would benefit more from a price reduction than from increasing wages and salaries for obvious reasons, chief among them being money illusion.” – The Source