Payment for goods priced in black-market rates suspended?

All payments have been suspended for goods supplied to Government ministries, departments and agencies and possibly priced using black market exchange rates with procuring units now compelled to do due diligence on contracts and confirm that the official interbank rate is being used before payments resume.

Many suppliers in times of high inflation or exchange rate volatility quote in US dollars and then convert to local currency on the date of payment.

This is permitted and even many State service providers such as Zesa and Zimsec are allowed to do the same as a practical matter. But the exchange rate used for the conversion on the day of payment has to be the interbank rate.

In a letter addressed to all his fellow permanent secretaries, Finance and Economic Development Permanent Secretary George Guvamatanga said all ministries and their departments and agencies must rationalise their payment requests within the confines of the interbank foreign exchange rate, the one set in the banking system and based on willing buyers and willing sellers.

Payments would only resume after submission of reports with findings of the due diligence exercise on all running and future contracts, with special focus on pricing.

"Treasury has noted with concern that line ministries, departments and agencies are submitting pay runs for the disbursement of cash for goods and services procured using parallel market exchange rates.

"As you are aware, such pricing framework by the suppliers of goods and services has not only been causing inflationary pressures but also fuelling parallel market activities.

"This has resultantly caused instability in the foreign exchange market characterised by unnecessary movements on the rate resulting in exorbitant prices being charged," he said.

The interbank exchange rate, set by markets outside the control of authorities, was declared the official exchange rate recently and the auction rate was brought into alignment with this rate by rejecting all bids that were significantly below the rate.

But many suppliers have continued to use the black-market rate, so the goods and services they supply are significantly more expensive for those paying in Zimbabwe dollars and that, said Mr Guvamatanga, had seen the budgets for their ministries and their departments and agencies being eroded far faster than anticipated.

That in turn was exerting pressure on Treasury in demanding more fiscal resources which are not aligned to the revenue inflows, which are in line with the official rate, and that was creating an inherent fiscal risk of unsustainable budget overruns and budget deficits.

Going forward, Mr Guvamatanga said all ministries and their departments were required to seek Treasury approval on contract prices to ensure effective control in the use of public resources as guided by the Public Finance Management Act.

"In addition, all payment runs submitted to Treasury should have been reviewed and signed off by the Accounting Officer (who is normally the permanent secretary of the procuring ministry) ensuring value for money in procurement and confirming that the pricing framework is in line with Government policy," said Mr Guvamatanga.

The Public Finance Management Act compels and empowers the Treasury to manage and control public resources, as well as determine the manner in which public resources are used.