Govt suppliers scream over frozen billions in payments
…US$5 million trickles out
CRITICAL suppliers of goods and services, as well as contractors of the Zimbabwean government are screaming as Treasury maintains a freeze on payments in a bid to contain rampant parallel market and arbitrage activities destabilising the exchange rate and fuelling inflation — only allowing small sums to trickle out with just US$5 million released last week.
Treasury sources told The NewsHawks that the Finance ministry, which is under growing pressure to pay its obligations, had to release US$5 million to its suppliers this week, mainly those in the security sector who are treated as priority.
Public procurement is central to government service delivery. It involves large sums of money.
Sources say the government’s monthly operating budget is ZW$100 billion. It is split almost equally between civil servants’ wage bill on one hand and recurrent, as well as capital expenditures on the other.
“Treasury is essentially still maintaining a freeze on payments,” a senior Treasury official said.
“The strategy is to limit, throttle and freeze payments to contain suppliers and contractors from going into the black market to change their huge sums of local currency into United States dollars, while fuelling exchange rate volatility and inflation. This is part of the broad campaign which involves a series of self-reinforcing monetary policy measures and the gold coins initiative, among other things, to mop up liquidity.”
However, suppliers are complaining that the government is now crippling and destroying their businesses by withholding payments, while making life difficult through new moves like asking how contractors are going to use their money after payments.
“The suspension of payments is destroying our businesses. How do we settle our obligations if we are not paid? For us to pay our own suppliers or clients, we need to be paid first,” one contractor said.
“To make matters worse, government, whenever they pay us, they are now asking us to explain how we are going to use our own money afterwards. Where in the world have you ever heard that? The whole rationale is flawed. The issue is if the local currency is bad money, which it is, everyone wants to get rid of it quickly as soon as they get it in this environment of exchange rate volatility and high inflation. They know bad money chases away good money.
“So why blame suppliers and contractors for black market activities and arbitrage as if they are root causes of the problem when they are just a symptom? We all know what the real problem is: It’s the politics stupid! Fix the politics first and the economy will consequently recover. The rest is just economic detail really.”
Treasury earlier this month suspended payments to the government’s contractors and service providers until a due diligence exercise has been carried out in what is clear admission on the forces behind parallel market foreign exchange trades which have ratcheted up inflationary pressure in the economy.
According to a recent letter written by Finance secretary George Guvamatanga addressed to senior government officials, including Martin Rushwaya, deputy chief secretary to the President and Cabinet, Jonathan Wutawunashe, secretary to the Public Service Commission, among others, Treasury has suspended funding for payment runs submitted as at 31 July as it reviews existing procurement contracts.
As reported by The NewsHawks recently, government procurement and service providers — who include public works contractors and suppliers of goods and services — are destabilising the foreign exchange market by offloading part of their staggering monthly payments, fuelling inflation.
“Treasury has noted with concern that Ministries, Departments and Agencies are submitting pay runs for the disbursement of cash goods and services procured using the parallel market exchange rates,” wrote Guvamatanga in a letter dated 4 August.
“As you are aware, such pricing framework by suppliers of goods and services have not only been causing inflationary pressures but also fueling parallel market activities. This has caused instability in the foreign exchange market characterised by unnecessary movements on the rate resulting in exorbitant prices being charged.”
Forward pricing by the contractors and the buying of foreign currency from the parallel market, according to Guvamatanga, has resulted in budget overruns which are piling pressure on Treasury to fund expenditure which is not aligned with revenue inflows.
“In this regard, Treasury is suspending all payments to MDAs whilst awaiting your submission of reports of findings of due diligence on all running and future contracts with special focus on pricing,” the letter further reads.
“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 PFM Act [Public Finance Management].
“In addition, all payment runs submitted to Treasury should have been 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.”
Sources say the government spends about ZW$50 billion a month (about US$110 million at the official exchange rate) on suppliers. This money mostly finds its way into the parallel market, fuelling exchange rate volatility and inflation.
However, the rate has been coming down of late due to a cocktail of tight monetary policy measures and crackdown on the market. Most of the government’s procurement of goods, works and services is financed from short-term public funds.
These services include buying motor vehicles, information communication technology systems and computers, fuel, furniture, food, travel, cleaning services, utilities, construction of roads and dams, alteration, demolition, installations, or repair work done under contract and paid mostly in full through taxpayers’ funds.
Sometimes these are financed by loans, donor funds and grants, but due to Zimbabwe’s international isolation and lack of external funding because of failure to repay debts and arrears, as well as financial restrictions (targeted sanctions), foreign funding is limited.
Due to failure to repay arrears, the country cannot borrow externally. As a result, it finances its capital expenditure projects through short-term outlays, thus creating liquidity, fuelling money supply and inflation.
After procurement, and providing goods and services, the suppliers are paid in local Zimbabwean dollar currency, which they often rush to offload on the parallel market to buy hard currency — United States dollars — as a store of value and a more preferred medium of exchange in the market.