Zimbabwe seen printing, borrowing money for salaries

Zimbabwe's embattled government is likely to print money and increase domestic borrowing to fund civil servants' salary hikes, which will push the world's highest inflation rate up further, analysts said on Tuesday.
President Robert Mugabe's government last week raised public service and military salaries by up to 300 percent amid media reports that the step had been initiated by security chiefs to ensure loyalty against threats of mass protests by the opposition Movement for Democratic Change.
The government is accused by critics of ruining a once promising economy, plunging it into a crisis marked by rising joblessness, shortages of foreign currency, fuel and food and an inflation rate gliding towards the 1,000 percent mark.
"There is no doubt the government will have to borrow to finance the salaries and this is destructive economically," economic consultant Eric Bloch told Reuters.
Political and economic analysts say protest calls could resonate among a broad range of disgruntled citizens who also have to deal on a daily basis with breaking sewer systems, water and electricity cuts, uncollected garbage and bad roads.
Mugabe, in power since independence from Britain in 1980, indicated in February his government could print money to shore up an economy ditched by international donors over policy differences with Harare, such as its seizures of white-owned farms for blacks.
"Alternatively (to borrowing) they will have to print money and this is a more likely option although it is not sustainable," said an economic analyst with a Harare financial institution.
Analysts said borrowing would widen the budget deficit and balloon its domestic debt from around 15.1 trillion Zimbabwe dollars ($149.2 million) while printing money would fuel broad money supply growth. The Ministry of Finance had projected a budget deficit of 4.6 percent of gross domestic product (GDP) in 2006 while its wage bill was expected to stand at 40 percent of its total expenditures, targets analysts said would be missed.
The budget deficit amounted to 8.6 percent of GDP in 2005. The government had initially set aside 30 trillion Zimbabwe dollars for its wage bill, but analysts say this is set to nearly treble after the new salaries. The analysts say Zimbabwe's main source of inflationary pressures are uncontrolled government spending and borrowing.