African Payroll: Zimbabwe Inflation & 2024 Salary Increases
Compensation and Benefits practitioners have struggled in Zimbabwe over the last few years.
The difficulty emanates from the problem that when inflation reached 786% in May 2022, companies adopted different remedies to alleviate the plight of employees. Some introduced an inflation/ hardship allowance, others simply increased basic pay, others adjusted the mix of remuneration between Zimbabwe dollars and US dollars, while others paid employees fully in US dollars. This has made it extremely difficult to benchmark salaries in the country and, to scientifically formulate an annual salary increase.
Another curve ball has now been presented to Comp and Ben practitioners, in that the methodology to calculate official inflation figures in Zimbabwe, has changed for the second time this year.
Budgeting for salary increases in 2024 has probably already commenced and as inflation is a significant element in determining such increases, alarm bells have started ringing.
The following are the historic official inflation rates:
Inflation was 285% in August 2023 and began to slow to 230% in January 2023.
At the February 2023 MPS meeting the minutes state – “It is, however, important to note that the ZW$ inflation is no longer a true representative of the cost of living in Zimbabwe as the country is in a dual currency system where prices and household incomes are also in both USD and local currency. In this context, Zimbabwe’s inflation needs to be recalibrated to reflect the dual currency nature of incomes and prices in the economy to provide a true reflection of the cost of living in the country. Therefore, and as was unanimously agreed by MPC, it is essential and logical that the blended rate of inflation should be the reference rate of inflation in Zimbabwe.”
With the release of the February 2023 inflation figure, the Zimbabwe National Statistics Agency (ZimStat) officially migrated from announcing Zimbabwe dollar (ZWL) inflation statistics to blended inflation reporting. Blended inflation is simply a weighted average increase in general prices based on ZWL and the United States dollar (USD) to take cognisance that 77% of market transactions were conducted in US$’s.
Inflation therefore decreased from 230% in January 2023 to 92% in February 2023.
Another curveball was delivered in September 2023 when ZimStat announced it had adopted a “geometric aggregation method” of calculating inflation and not the arithmetic-based calculation of blended inflation, which it adopted in February 2023. They stated that the new method would improve accuracy as it was based more on US$ pricing.
Inflation therefore decreased from 77% in August 2023 to 18% in September 2023.
Given that inflation is a significant input into the determination of a salary increase for 2024- what is the inflation rate?
Let’s assume that for now we completely trust the official inflation rate of 18% in September 2023. If your company is:
-
- paying employees in US$, then the inflation rate applicable to them (the erosion of their disposable income) is less than 18% – included in that figure is 20% ZWL inflation which is significantly higher.
- paying employees in ZWL, the inflation rate applicable to them is significantly higher.
- paying employees, a portion of their salary in US$ and a portion in ZWL, their applicable inflation rate depends on the percentage split between the two currencies.
Concomitantly, the official inflation rate of 18% is not a good indicator of a proposed salary increase for 2024.
It is impossible to provide a generic proposed salary increase for Zimbabwe this year- each company will have to examine past salary increases, previous inflation/ hardship allowances, the current currency split paid to employees, and a plethora of other factors to determine a salary increase for 2024 which is equitable to all stakeholders.
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