ANALYSIS | Govt is suspending payments to contractors over inflation, making an admission that is months too late

Roadworks in Zimbabwe: The country had to fund its own infrastructure, but at the risk of inflation

As the Zimbabwe dollar tanked and inflation soared, government responded in the only way it knows how: wagging fingers and spinning dark conspiracies.

But, all along, the government knew the source of the inflation; it was where the other fingers were pointing at all this while – the government itself, and its mismanagement of public contracts.  

On August 4, Treasury Secretary George Guvamatanga wrote to government ministries and departments, telling them he is suspending all payments to all government suppliers. He will not pay out to any contractor, until there is an investigation into what the Ministry of Finance thinks is a racket by suppliers to inflate prices by invoicing at the parallel market exchange rate.

Guvamatanga blames this pricing for “instability in the foreign exchange market characterised by unnecessary movements on the rate resulting in exorbitant prices being charged”.

“In this regard, Treasury is immediately suspending all payments to MDAs (ministries, Departments and Agencies) while awaiting your submission of reports of findings of the due diligence exercise on all running and future contracts with special focus on pricing. Going forward, you are required to seek Treasury approval on contract prices in order to ensure effective control in the utilisation of public resources as guided by the (Public Finance Management) Act,” Guvamatanga says.

Any future payments, he writes, will have to be “reviewed and signed off by the Accounting Officer ensuring value for money in procurement and confirming that the pricing framework is in line with Government policy.

In his letter, Guvamatanga says the inflated invoices have eroded the budget. The demand for extra money is “exerting pressure on Treasury in demanding more fiscal resources which are not aligned to the revenue inflows, thereby creating an inherent fiscal risk of unsustainable budget overruns and budget deficits.”

TAKING STOCK: Here’s what Govt has spent on key infrastructure projects this year

Recently, Finance Minister Mthuli Ncube announced a supplementary budget of ZWL$929 billion, 19% of which is meant for capital projects.

The measure to suspend payments to government suppliers will delay public projects further and make service delivery worse than it already is. Suppliers are, effectively, being forced to accept payments below cost, making it harder for them to secure inputs or services, which they pay for at market price.

A newly laid section of the Beitbridge highway (pic by Exodus & Co). The government is to delay its prized projects to tame inflation

Self saboteurs

Government has accused businesses of sabotaging the government, an old refrain that officials return to each time inflation flies off the handle. Government officials have taken damaging action against mobile money platforms, Old Mutual, the stock exchange, and even banned bank loans for a period, all to push the blame for inflation on someone else.

All the while, government was waving away critics who pointed to the fact that inflation was getting its fuel from the government itself.

Last week, tucked away at the bottom of a lengthy Herald article by President Emmerson Mnangagwa’s spokesman, George Charamba, was an important admission on inflation; it was us all along.

“The public sector has been stoking money supply…the State, through its various Ministries, has been discharging into the market more than ZWL$10 billion a week, through payments, all of them consumptive,” Charamba, wrote.

He went on: “This is hardly surprising: the State accounts for upwards of 75% of purchases in the market. I would not have minded if this stupendous amount related to payments for productive activity. No, all of it went towards consumptive activity. Number One is now seized with the matter and this gargantuan public tongue will now be restrained.”

Government is only now admitting to its role in stoking inflation, a string of damaging and needless Statutory Instruments later. It is an admission that may be coming rather too late to put the breaks on the Zimdollar’s decline.

It is an admission that does little to win back the long-lost confidence of the public, least of all businesses that have had to take dishonest finger-wagging from the guy who knew all along that he was the one who stank up the place.  

ALSO READ | Govt sees its infrastructure spending as a source of pride, ZNCC sees it as the main source of inflation