Govt in fiscal strain | Business Times

CLOUDINE MATOLA

 

Kudakwashe Mnangagwa (pictured), the Deputy Minister of Finance, Economic Development, and Investment Promotion, disclosed this week that the government is under financial strain and is unable to pay several contractors working on road rehabilitation projects across the nation as a result of road authorities over contracting beyond  fiscal capacity, Business Times can reveal.

According to Mnangagwa, the road projects’ value exceeded the government’s financial means, which resulted in unpaid balances to contractors working on the Emergency Road Rehabilitation Program (ERRP), which was launched in 2019 to expedite the rehabilitation of major and rural roads that were in deteriorating condition.

Some contractors have given up on the road rehabilitation projects because the administration has not fulfilled its promises.

Apparently, the government started using domestic contractors to repair the roads after having issues with foreign contractors because of  the administration’s  poor payment history and high country risk.

Although Mnangagwa refused to disclose the precise sum owing,it is believed that the outstanding amounts  were billions of dollars.

In an interview with Business Times this week, Mnangagwa confirmed the dire situation  saying the reason for the outstanding balances, especially with regard to ERRP, is the inability by the government to pay the contractors performing the road rehabilitation.

“The situation we find ourselves in is where road authorities had over contracted beyond fiscal capacity hence the resultant outstanding balances especially on the ERRP,”  Mnangagwa said.

In order to pay off the arrears, some contractors have gone into 12-month settlement arrangements, according to Deputy Minister Mnangagwa.

“For Harare-Beitbridge indeed there are outstanding payments that we are liquidating gradually and we have entered into settlement plans for some of these arrears. Going forward we will endeavor to align implementation plans with fiscal capacity to avoid further accumulation,” he said.

Mnangagwa told this publication that part of the funding for roads will come from the ZINARA Road Fund in addition to other budgeted revenue sources.

He said progression in payment will ensure contractors can complete their work.

Mnangagwa added that, going forward the government will engage effectively to align implementation with cashflow capacity.

Furthermore, Mnangagwa said that while it wasn’t the main reason for the delay in paying road contractors, Treasury will not relent on its value for money exercise to guarantee that taxpayer monies are used effectively.

He said the government will not budge on this objective.

Numerous economists who spoke to Business Times expressed concerns that the current state of affairs would exacerbate the risk of money printing, depress local currency, and boost inflationary pressures.

According to economist  Dr Prosper Chitambara, there’s a  likelihood that this excessive contraction will lead to an increase in the money supply and an infusion of liquidity.

“I think there’s going to obviously be an increase in money supply and injection of liquidity on account of this over contraction, which obviously will cause inflationary pressures since the recipients would then convert that into United States dollars, so that will mean an increase in demand for the American dollar because of the increase in Zimbabwean dollar liquidity,” Chitambara told Business Times.

According to Victor Boroma, an economic analyst, this heightens concerns about money printing.

“The risk for money printing and abusing the role of the central bank’s quantitative easing policy is very high, to fund the fiscal deficits especially road construction projects. It has happened before, this will further depreciate the local currency and put pressure on foreign exchange markets,” Bhoroma told Business Times.

According to Vince Musewe, another economist, said excessive contraction beyond fiscal capacity is indicative of poor planning, potential financial exploitation, and a way of inflating pricing.

He continued by saying that many government   projects raise grave concerns about integrity and good faith, and that there is a widespread culture of non delivery and secrecy that is not going to change.

 

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