Treasury suspends payments to Govt contractors; contracts priced at black market rate

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By Bloomberg News

Zimbabwe has suspended payments to government contractors as part of efforts to halt a slump in its currency that’s fueling hyperinflation.

The order was sent to government ministries, departments and agencies by Permanent Secretary of Finance George Guvamatanga after the Treasury noticed they were submitting invoices of cash for goods and services using parallel market rates.

The MDAs are required to seek approval from Treasury for current and future contract pricing and share with it their due diligence on existing charges, Guvamatanga said.

The dollar changes hands on the parallel market for as much as Z$800 — 41% higher than the official rate. The discrepancy has caused extreme volatility in the market and seen the Zimbabwean dollar plunge 76% this year against the greenback, stoking inflation that’s been in triple digits since May.

“Such pricing framework by the suppliers of goods and services, have not only been causing inflationary pressures but also parallel market activities,” Guvamatanga said in the circular seen by Bloomberg and dated Aug. 4. Treasury confirmed the letter.

“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 Treasury also raised concern over the implications paying the parallel market rate has had on MDAs’ budgets and on national fiscal resources.

The measure adds to others announced this year to stabilise the currency and curb inflation such as lifting the key interest rate to 200% from 80% in June, reintroducing the US dollar as legal currency, selling gold coins and potentially setting up a currency board.