eBusiness Weekly
Business Writer
Prominent economics professor, Gift Mugano, says there is a need for “maximum scrutiny” of the Government procurement system amid revelations that firms contracted by the State are the major drivers of the exchange rate volatility.
“This requires maximum scrutiny by the Office of the President and Cabinet because the Treasury alone seems to have failed,” Prof Mugano said in an interview.
“Due care should be taken in removing concentration of few players in the overall Government programmes while procurement should be done directly with manufacturers; and to watch out forward exchange rates and double pricing especially with construction contractors who seek to close the exchange rate disparities.”
Prof Mugano has long blamed the funding model for infrastructure projects for causing exchange instability. This week, Finance and Economic Development Minister Prof Mthuli Ncube introduced measures seeking to scrutinise the payments made to Government suppliers to establish how the funds are being utilised.
Where it is determined that funds were channelled to the illegal foreign exchange market, he suppliers will be blacklisted by the Procurement and Regulatory Authority of Zimbabwe and “will be banned from participating in any government tenders to ensure that the government is getting full and fair value.”
While the Reserve Bank of Zimbabwe has put in place various viable measures aimed at curbing inflation and stabilising exchange rate, some critics believe such interventions have been undermined by funding model of public infrastructure projects.
From a procurement perspective, the Government departments are contracting middlemen who directly buy from manufacturers and add excessive mark ups in addition to massive forward exchange rates which are currently excess of $2 000 per US dollar when the parallel market rate is around $850. The very same suppliers are given prepayments and always offload their excessive profits on black market.
And from the distribution perspective, 34,5 percent of the budget is allocated towards capital projects while 12 percent is going towards the agricultural sector.
Ironically, the players or service providers who are participating in roads and dams construction are also the same players involved in some big agricultural programmes funded by the Government. What it means is that a few individuals will be stashed with huge RTGS balances, which they offload into the black market.
Prof Mugano maintains that the national budget has been the major driver of money supply as significant share of funds are channelled through infrastructure funding.
The budget has risen from $8,1 billion in 2019 to $968 billion in 2022, 12,000 percent yet growth rates are averaging in the negative. Ministry of Finance has requested for condonation of $6,7 billion and $102 billion for 2019 and 2020, respectively – a clear sign that treasury is pumping money in the market. “Ironically, the 2020 budget was $63 billion but Government spent in excess of $102 billion,” he said.
“The budget has no fundamental problem with our economic situation,” said Prof Mugano.
“This is particularly so because the budget deficit as reported by the Minister of Finance is less than 5 percent of the gross domestic product. It is acceptable; is within the stipulated range. However, the real problem from the budget is on how the funds are distributed as well as the procurement process,” said Prof Mugano.
