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Government has not remitted money deducted from civil servants’ salaries for payment of creditors for the past three months.

MICRO-FINANCE institutions (MFIs) face closure due to government’s failure to remit money deducted from civil servants’ salaries for credit facilities from the financial institutions, the Financial Gazette can report.

Government has not remitted money deducted from civil servants’ salaries for payment of creditors for the past three months.

The money, which is running into several millions of dollars, could result in a significant number of registered MFIs closing shop.

According to industry players, closure is inevitable for most MFIs should government skip payments for another two months.

Government’s failure to remit money deducted has also affected other service providers who were doing business with civil servants.

The civil servants instalments are deducted by government through the Salary Services Bureau, which manages its payroll.

MFIs that spoke to the Financial Gazette this week said although they had been paid their dues for the first two months of the year, “the payments came late” and they were no longer keen to do business with civil servants.

Some civil servants said they already had their properties attached by MFIs, and that some creditors were beginning to institute legal action to recover their money.

Zimbabwe Association of Micro-Finance Institutions (ZAMFI) chief executive officer, Godfrey Chitambo, said while the arrears had aersely affected the 143 registered MFIs in the country, a plan was being worked out with government to ensure that no company collapses.

“We have been engaging with government and are on the verge of an agreement that is conducive for both parties considering the environment we are operating in,” he told the Financial Gazette on Tuesday.

ZAMFI is the umbrella body for microfinance institutions.

Since the economy was formally dollarised in 2009, government has been increasingly struggling to meet its salary obligations.

The Premier Service Medical Aid Society (PSMAS), with which the majority of civil servants have their medical insurance, announced that its members would now have to fork out cash for medical services due to non payment of subscriptions.

PSMAS is one of the many companies not getting paid by government despite medical aid subscription fees being deducted from their members’ salaries.

The payment of cash upfront was part of a strategy to avoid litigation from service providers, PSMAS said.

Finance Minister Patrick Chinamasa has confirmed government’s failure to remit deductions under the stop order system to various creditors owed by civil servants due to financial constraints.

Government is this year expected to spend over 90 percent of its budget on recurrent expenditure which last year gobbled 92 percent of revenues, leaving a negligible eight percent for other commitments.

Government relies almost entirely on tax collections to fund its operations, but has consistently failed to meet targets as the revenue base continues to shrink while expenditure soared relentlessly.

Indications are that government’s employment costs are likely to double this year due to an unsustainably higher number of civil servants, most of whom were employed under unclear circumstances.

This comes against the background of wage increases over a year ago, which were made even as fiscal pressure intensified.

According to figures from the accountant-general, employment costs for the first two months of the year amounted to US$465,7 million, about 23 percent of the total employment costs of US$2,1 billion paid out last year.

The figure included year-end bonuses for 2014 that had been paid at the start of the year.

The government’s salary bill amounts to about US$3,32 billion, or 81 percent of total expenditure, leaving a balance of US$798 million for operations, debt service and capital development programmes.

Bonus payments will result in the salary bill coming to nearly US$4 billion.

What this means is that salaries alone may end up gobbling the entire budget, leaving nothing for projects and debt repayment. Government is saddled with a US$8 billion debt.

Source : Financial Gazette