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GOVERNMENT plans to rationalise the public service wage bill starting next year, to create more “room for priority spending”, the International Monetary Fund (IMF) said, after its 2025 Article IV Consultation with Zimbabwe.
The focus on the wage bill comes as the “public compensation” bill now accounts for about 55 percent of Government revenue, a proportion the IMF’s staff described as “well above regional averages.”
This comes as observers say the fiscal balance may come under increased pressure due to additional critical expenditure obligations, including in the health sector.
The planned wage rationalisation strategy is rooted in the Public Service Commission’s “Job Evaluation Report,” which, according to the IMF, “finds scope for rationalising staffing and systems automation.”
The global lender said authorities in Zimbabwe had agreed to a “medium-term reform agenda”, which includes the “implementation of findings from the ‘Job Evaluation Report’.”
IMF believes these reforms will be “implemented next year” to achieve a quarter of gross domestic product (GDP) in net savings, once fully implemented.
The authorities broadly “agreed with (IMF) staff on the need to address fiscal pressures” and concurred with the importance of strengthening the Public Financial Management (PFM) system, which will be “supported by IMF technical assistance.”
This plan to rationalise public compensation forms a crucial part of broader fiscal structural policies needed to “strengthen public financial management” and ensure any adjustment is “sustainable”.
The IMF said while the Zimbabwean authorities acknowledged that “fiscal financing gaps would persist under current policies”, they preferred a “more gradual adjustment scenario”, considering their existing policies as “broadly adequate”.
According to the IMF, Government’s preferred approach involves curtailing spending in case of revenue shortfalls, with the global lender calling for caution to avoid unplanned disruptions to public services and project implementation.
To manage the current financial gap, the authorities plan to control cash spending and partly repay arrears, which implies a slower adjustment with the focus on ensuring sufficient payments to suppliers to avoid disrupting essential services and projects.
A development economist, Dr Patience Mavaza, said fiscal consolidation must be balanced with developmental imperatives.
“The key is to anchor adjustments in a medium-term expenditure framework that protects health, education and infrastructure spending,” she added.
“Through improving expenditure efficiency, enhancing public investment management, and leveraging concessional financing, Zimbabwe can sustain growth while gradually restoring fiscal buffers in line with IMF recommendations.”
Beyond spending controls, Government is also looking at the revenue side.
The authorities “continued to work on tax incentive rationalisation” and “underscored their commitment to improving taxpayer compliance”, reads the IMF report in part.
The IMF highlighted that the tax gap is estimated at about 3,5 percent of GDP, with “rationalising generous tax incentives” being key for narrowing this gap.
Furthermore, the IMF staff noted that a conservative projection for revenue reforms, including administrative improvements and tax policy changes, could “gradually boost the revenue ratio by an estimated one percent of GDP in the medium term.”
This increase would create room to increase priority spending after curtailing expenditures to close the financing gap in 2025, added the IMF.
On social expenditure, the IMF team advised that it should be protected, but better targeted.
Authorities were urged to “at a minimum, maintain the current level of spending on social protection and basic public services”, while improving the inadequate targeting.
