The Ministry of Finance and Economic Development has issued measures tackling the scourge of government contractors channeling funds into the parallel foreign exchange market to source foreign currency.
Government pays its contractors in the local currency that is rapidly devaluing with most of the firms quickly exchanging it for the USD on the parallel market to store value.
Among notable interventions by the Ministry of Finance will be the strict supervision of how funds are utilized upon payment.
Where it is found that the funds were channeled to the foreign exchange market, the bank accounts involved will be frozen pending criminal investigations and prosecution of companies directors and officers.
Furthermore, proceeds from the illegal transactions will be forfeited to the State in terms of the Money Laundering and Proceeds of Crime Act.
The companies and directors thereof will be blacklisted with the Procurement Regulatory Authority of Zimbabwe and banned from future government tenders.
Last week, Reserved Bank of Zimbabwe governor, Dr John Mangudya told the Parliamentary portfolio of finance that the contractors providing various goods and services to government development programs were behind the rapid exchange rate movements in the parallel market.
“Each time government makes a bulk payment to contractors we have noticed that during that very week or day the exchange rates in the parallel market go up which means these are the people driving exchange rates,” said Dr Mangudya.
Analysts have long been critical of government payment model of its suppliers which was rather short-term and causing massive money supply in the economy.
They argued that the various infrastructure programs undertaken by government are happening concurrently using short term financing.
In other countries where similar public infrastructure programs have taken place, the source of financing has been long term, mainly through patient capital funded by development institutions such as African Development Bank, IMF and World Bank with payments disbursed gradually.
Observers say there is a trade off between development and money supply which leads to inflation when ever massive projects are done using internally mobilized resources.
Zimbabwe last received meaningful funding from development institutions like World Bank and IMF in 1999 and since then it has been blacklisted for defaulting on repayment.
According to economic analyst, Vince Musewe, government is also to blame for massive printing of money into the economy, underlining suspicions that government could be looking for scapegoats.
“We know government has been printing money because all this liquidity is being produced by government. If you print money you get inflation, simple as that,” said Musewe.
