Government has crafted measures to curtail unauthorised borrowing and spending chief among them Treasury directives that state entities “strictly” adhere to provisions of the Public Debt Management Act.
This comes as a data baseline study conducted in 2016 revealed, 70 percent of Zimbabwe’s 107 parastatals and State enterprises were technically insolvent, illiquid and continued to bleed the fiscus due to reckless and wasteful habits of executives, which include asset stripping, mega salaries and perks.
In pursuance of enforcement of discipline in these firms, which are key economic enablers and whose services oil the economy, all transactions conducted without approval of the Ministry of Finance and Economic Planning’s will be dishonoured.
To contain mounting historical debts, granting of borrowing authority will now be within the set annual borrowing limits and will be based on the capacity of the public entity to repay the money.
The Finance Ministry said stricter measures will also be put in place when the Public Entities Corporate Governance Bill becomes an Act of Parliament. This is expected to be signed into law by the end of March this year.
Government had earlier developed the implementation guidelines on board effectiveness and performance management for State enterprises and parastatals, but some of the regulations were not abide by as the bosses continued pocketing mega benefits.
Some of the regulations in the proposed Corporate Governance and Public Entities Bill are designed to end a culture of impunity, abuse of resources and mismanagement of State entities that according to recent reports had accrued debts of over $3 billion to local and external financiers including Paris and Non Paris Clubs lenders.
In written responses to enquiries this week, Finance and Economic Planning Ministry Permanent Secretary Willard Manungo said the “New Economic Order” adopted a zero tolerance on practices that violated good corporate governance tenets in state owned companies.
“Under the “New Economic Order”, as espoused by His Excellency, the President (Mnangagwa), mechanisms have been put in place to ensure that all State Enterprises and Parastatals comply and strictly adhere to basic tenets of sound and good corporate governance practices, especially curtailing excessive and unauthorised borrowing by public entities,” he said.
“In that regard, and in consultations with other line ministries, Treasury has developed Treasury instructions, where all public entities are required to strictly adhere to the provisions of the Public Debt Management Act, wherein they are not allowed to borrow without written authority from the minister responsible for finance and the ministry under which the parastatals falls. All transactions made without this express authority will not be honoured.
“Pursuant to that policy thrust, Government is finalising the Public Entities Corporate Governance Bill, which seeks, among others, to professionalise the manner in which public entities carry out their day to day functions. The Bill has already been read for the second time in Parliament, and is expected to be signed into law by end of March 2018,” said Mr Manungo.
The parastatals that claim were being choked by historical debt, have continued to grow their debt, a move treasury said was not sustainable.
The poor performance of State entities has been attributed to weak or absence of good corporate Governance practices, a move that has seen their contribution, which previously stood at 40 percent of gross domestic product, falling to 2 percent while they continued to rely on Treasury for funding.
About 70 percent of 93 surveyed state entities were technically insolvent, while 38 of the entities surveyed ran losses totalling $270 million in 2016.
Inorder to manage the situation, Manungo said: “Treasury is also vigorously enforcing the requirement that, at the beginning of each financial year all public entities submit their borrowing requirements, which should be within the set annual borrowing limit and is based on the capacity of the public entity to repay and such other considerations as the minister may determine.
Meanwhile, there is concern that some public entities continues to operate without enough skilled manpower, recommended board committees, or the boards themselves, while the entities management had no performance targets or appraisals.
The Public Entities Corporate Governance proposed law requires the State entities to adhere to prescribed reporting requirements time-frames and a host of accountability obligations in addressing the malaise obtaining in State owned entities.
The proposed law will foster transparency, accountability and more disclosures, requiring management to report correctly and regularly the activities of state entities.
Before the new dispensation, Cabinet had approved the assumption of well over $1 billion worth of debts accumulated by some State Enterprises including Air Zimbabwe and Zisco Steel, as part of accelerated efforts to make them attractive to potential suitors.