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Sunday, 31 March 2013

More Money In Civil Servants' Pockets

Life has never been better for civil servants. GRZ has announced a new Public Service Microfinance Institution which will be giving loans to civil servants at less than 5% interest. According to Finance Minister Alexander Chikwanda the "mini bank" will become operational soon and is intended to "trigger downward movement in interest rates". GRZ has also increased salaries for civil servants with some (not all) getting as high as 200 percent effective September 1, 2013. This follows successful conclusion of negotiations with Civil Servants and Allied Workers Union of Zambia.

Details are needed on the new "mini bank". The idea was suggested last year but now appears to be materialising. The rationale seems very poor. It certainly won’t trigger rates downward! There are many ways of getting loans to civil servants without a "mini bank". Capping it at 5% creates a large gap to current high market rates. What is to prevent a civil servant borrowing the money and then lending it to someone else at a profit? It is also wrong priorities. Why only civil servants? Surely we should be trying to widen credit access to everyone, especially the 70% living on less than $2 a day?

The wage increases are equally problematic. There’s no doubt that civil servants are poorly paid and deserve a wage increase. But astronomical wage increases means government is borrowing money merely to pay wages. All the money comes from a single national finance pot. We should be trimming the size of the public sector not growing it through large wage rises. Is this a prudent way of spending borrowed money (domestic or externally financed)?

The key word is “prudent” because there are many government departments currently limping where resource capacity is needed in non-wage areas. Not only that as a nation we have many areas that are in dire need. Money being spent in one area will not be available for other critical areas of social infrastructure – unless we borrow more! If money must be spent, would it not be better to focus on that?

The bigger problem of course is that high public sector wage increases pressure for wage demands in the private sector. Government should not set the trend of large inflation bursting wage demands. It may be detrimental to the economy.

Question: has the more money in your pockets agenda gone too far? Interested to read your comments below

Copyright © Zambian Economist 2013

1 comment:

  1. You are spot on with your assessment and solid insight on potential for abuse. Ironically, most MFIs loans go to public sector anyways so this will only further destroy the MFI sector in Zambia.


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