THE Government remains adamant it will not rescind the decision not to pay its suppliers unless all invoices that were issued using parallel market rates are revalidated and revised in line with prevailing official exchange rates.
Treasury recently suspended payments to Government contractors, ministries, departments and agencies (MDAs) after it noticed that they were submitting invoices for goods and services priced using parallel market rates. The MDAs are now required to seek approval from the Treasury for current and future contract pricing and share with it their due diligence on accepted contract prices.
Responding to some market players who said the decision not to pay suppliers was akin to the Government “sabotaging the economy”, Secretary for the Finance and Economic Development Ministry George Guvamatanga told Business Weekly that “there is no going back on the decision”.
He said, “all invoices and contracts priced using parallel market rates will only be paid after they have been adjusted in line with the Willing Buyer-Willing Seller (WBWS) exchange rate”.
“There is no exception to this requirement. Those who are keen to continue doing business with the Government will have to adjust their pricing models.”
Market watchers said the move to suspend payment to private service providers could cripple operations, but Guvamatanga said Treasury had continued to “pay all invoices that did not require revalidation”.
“We have already started paying revalidated payments which have been revised in line with the prevailing official exchange rates,” he added.
Major retail outlets such as OK Zimbabwe, while telling customers that they are using official exchange rates, are, however, charging exorbitant prices in US dollar.
For example, while the price of a 2 litre bottle of ZimGold cooking oil has come down to below US$5 elsewhere, it costs US$6,09 in OK Zimbabwe.
Everyday Milk Powder which costs approximately US$3 elsewhere is going for US$6,07 while Goldstar White Sugar which is now priced below US$2 elsewhere is going for US$3,01 in the same outlet.
Amid accusations that by not paying Government was defaulting on contractual obligations, Guvamatanga said in terms of the law, the pricing of goods and services should be at the WBWS rate and all contracts priced at any other rate are illegal hence no legal obligation arises from a “dirty contract” which is using an illegal exchange rate.
“Therefore, by requesting an adjustment, the Government is being fair and reasonable, but if the supplier is difficult then we will cancel all unvalidated contracts from next week,” said Guvamatanga.
Treasury, in the letter to MDAs, raised concern over the implications paying the parallel market rate has had on MDAs’ budgets and on national fiscal resources.
According to Guvamatanga’s letter, 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.
Apart from battling imported inflation that has contributed significantly to domestic inflation through cost-push factors, the Government has introduced a host of measures intended to restore macro-economic stability, boost confidence in the economy, increase the appeal of the local currency, preserve value for depositors and investors and deal with market indiscipline.
The measures included a temporary suspension of lending, further reduction of the quarterly reserve money growth target to 0 percent as well as an upward review of the Capital Gains Tax for short term investments on the stock exchange from an initial 2 percent to 4 percent.
The Monetary Policy Committee (MPC) resolved to put in place measures intended to align interest rates with the inflation developments, enhance circulation of foreign exchange and introduce an investment instrument to assist holders to store value in gold coins.
These include increasing the bank policy rate from 80 percent to 200 percent per annum and increasing the Medium Term Accommodation interest rate from 50 percent to 100 percent.
The Zimbabwe dollar minimum deposit rates were also increased from 12,5 percent to 40 percent for savings deposits and from 25 percent to 80 percent for time deposits.
Finance and Economic Development Minister, Professor Mthuli Ncube, in July 2022 presented the Mid-Term Budget and Economic Review Statement, which highlighted a cocktail of interventions that the monetary and fiscal authorities have enacted over the past couple of months, with a view to maintaining macro-economic stability.
The Reserve Bank of Zimbabwe (RBZ) in its Monetary Policy Statement (MPS) recently sought to continue to implement a tight monetary policy stance in order to sustainably anchor inflation and exchange rate expectations. RBZ governor Dr John Mangudya said the Bank strongly believes the current tight monetary policy stance complemented by fiscal measures will result in exchange rate and price stability in the near and short-term.
“Thus, the decline in month-on-month inflation is expected to continue up to the end of this year and into 2023. This is essential for value preservation of the local currency and sine qua non to promote its use for transactional purposes,” he said.
The governor noted that the recent positive developments in the parallel market foreign exchange premiums and the decline in monthly inflation suggest that the current monetary policy stance should be maintained.
He said the current tight monetary policy stance, together with the favourable uptake of Mosi-oa-Tunya gold coins as an alternative stable financial product for store of value and for mopping up excess liquidity, shall continue to support the stability in the exchange rate and sustain disinflation witnessed towards the end of July 2022 and in August 2022.