Confederation of Zimbabwe Industries (CZI), in a Foreign Currency Auction Policy Response Paper says the announcement of USD based civil service allowances sends a signal that the authorities are on a path of re-dollarisation.
Finance Ministry announced that all civil servants will be paid a flat, non-taxable Covid19 allowance of USD75 per month after nurses demonstrated in Harare last week.
The CZI paper commenting on the USD allowances to civil servants went on to say that trade unions and the private sector will call for USD salaries further adding to re-dollarisation momentum.
“Government may find it difficult to reverse the USD Covid19 allowances,” reads the paper.
The USD allowances for civil servants will be paid in into local FCA accounts.
Following this, the CZI paper says there is only value to the allowances if the foreign currency can be either withdrawn or converted at the market exchange rate.
“The USD 75 allowance will cushion civil servants and give them income stability if the money is not an electronic gimmick.” reads the paper.
“The USD allowances will create USD local demand which had collapsed due to inflation and national lockdown.”
Besides being a signal to re-dollarisation, CZI also says government sources of revenue have been affected by covid19, hence the move to pay workers in USD may not be sustainable.
“The payment of COVID19 allowance in USD must be backed by real Nostro balances in Treasury accounts in order to avoid the creation of fictitious USD balances like what happened when we adopted the 1:1 policy in 2016,” the response paper reads.
“Ideally, Nostros have to be true, that is held by individual banks on behalf of clients abroad and not locally.”