Godfrey Marawanyika and Robert Brand Harare

ZIMBABWE is selling bills and bonds to pay a ballooning wage bill as the economic growth outlook dims and deflation takes hold, a year after President Robert Mugabe extended his term of more than three decades in office.

The government raised $2 million (R21.4m) last month through private placements of six-month treasury bills carrying a rate of 9.5 percent, said an official with knowledge of the matter. Commercial banks held $261.9m of bills at the end of June, more than double the $118m at year-end and $75.5m a year earlier, according to the Reserve Bank of Zimbabwe’s monthly review for June.

The recovery from a decade-long recession is wavering as factories shut and households come under pressure because of delayed salary payments by the government and job cuts by private companies. Growth, which averaged 10 percent between 2009 and 2012, is forecast at 3.1 percent this year, according to the International Monetary Fund (IMF). Consumer prices fell for five consecutive months through June.

“Zimbabwe’s push to sell local debt stems from the government’s inability to meet growing wage demands,” Charles Laurie at British risk advisory firm Maplecroft said.

“Increasing issuance of treasury bills and bonds to pay salaries signals a weakening fiscal condition.”

The IMF projects the government will pay $2.22bn for wages and salaries this year, out of total expenditure and net lending of $4.3bn.

Zimbabwean stocks have fallen 5.8 percent this year.

“Political issues remain the biggest obstacle to investment flows,” Thea Fourie at risk analysis company IHS Global Insight said this week.

Zimbabwe sold debt this year to pay back tobacco farmers, whose earnings were retained between 2006 and 2008 to raise foreign currency. The country issued $200m of three- to five-year bonds last month to banks, said a person who asked not to be identified because the sale was not made public.

Reserves are low, projected by the IMF at $464m by year-end, or less than a month of imports. – Bloomberg