The Zimbabwean administration of President Emerson Mnangagwa, which has been facing unrest amid rapidly rising inflation, has hiked civil servants’ salaries in local currency by 50% and also awarded them a US$75 Covid-19 allowance starting this month.

This came as health sector workers staged a demonstration at one of the biggest referral hospitals in Harare, demanding remuneration in foreign currency to cope with the ever-rising cost of living with the Zimbabwean dollar.

The government last week dispelled reports that some in the security services were plotting to overthrow Mnangagwa, who replaced former leader Robert Mugabe after a November 2017 coup. Since taking over, Mnangagwa has presided over a marked decline in economic productivity.

The Finance Minister Mthuli Ncube, who has faced mounting pressure to float the fixed exchange rate, said on Wednesday: “Zimbabwe civil servants salaries adjusted by 50% with immediate effect. In addition, a non-taxable Covid-19 allowance of US$75 per month [will be implemented] for civil servants whilst pensioners will get US$30 per month.”

The US dollar allowances will be paid for three months, while the civil servants have now been asked to open Foreign Currency Accounts with local finance institutions.

Treasury said in a separate statement that the Reserve Bank of Zimbabwe is “urgently addressing the domestic payments infrastructure in light of the increased need for transactability”.

The introduction of the US dollar allowances for the Zimbabwean civil service could reduce demand for Zimbabwe’s new local bank notes. Some traders are already rejecting the ZWL2.00 and ZWL5.00 notes.

Some economic analysts said the government allocating dollar allowances meant the market had already effectively re-dollarised. However, there are also concerns that while the latest fiscal move will breathe some liquidity into the economy, it will also stretch government coffers, and government could face limited supplies of foreign currency.

Statista noted earlier this month that in 2017, government expenditure in Zimbabwe amounted to about 22.48% of the country’s gross domestic product, with the figure now likely to increase.

Moreover, the major sources of foreign currency are under strain, with major gold producer RioZim saying it has shelved gold production because of foreign currency shortages, while some tobacco farmers are withholding their crop.

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COvid-19 Zimbabwe gives civil servants 50% salary hike, adds coronavirus allowance in US dollars