IMF tells Zimbabwe to keep state wages in check

HARARE, – The IMF has told Zimbabwe to contain public sector wage demands to avoid stoking inflation and reiterated it will not resume lending until Harare clears its arrears, a Finance Ministry official said on Thursday.\r\n

State workers, who earn an average $200 a month, are pressing for a doubling of their salaries, putting pressure on authorities already spending 70 percent of revenues on wages.

An International Monetary Fund (IMF) team is in Harare for annual consultations with the government and has warned that the wage demands could push the southern African nation back into an inflation spiral. The team ends its mission on April 1.

"The mission noted progress in the economy but is very worried by public sector wage demands. They want the government to exercise restraint in this area to avoid inflation shocks," a Finance Ministry official who attended some meetings with the IMF team told Reuters.

Hyperinflation was the hallmark of a decade of economic collapse in the southern African nation but price increases are now in single digits after the government scrapped the worthless Zimbabwe dollar and started to use foreign currencies.

A unity government under President Robert Mugabe and rival Prime Minister Morgan Tsvangirai has stabilised the economy but has not managed to attract the billions of dollars in aid and investment it needs to rebuild the devastated economy.

The pair are divided on how to implement an empowerment law which requires foreign-owned companies, including banks and mines, to sell 51 percent of shares to locals.

The IMF team has asked the government to clearly spell out how it plans to implement the law, which has already rattled investors seeking a share of Zimbabwe’s mineral resources, that include the world’s second largest deposits of platinum.

The finance ministry official said resumption of lending by the IMF, which last lent Zimbabwe money in 1999, was "still far off". The Fund wants Harare to clear arrears of more than $140 million before it contemplates any funding programme.

Zimbabwe owes foreign lenders $7 billion, more than its estimated $6 billion GDP this year, and is discussing plans for debt relief with the IMF team, the official said.