The 87-year-old leader unleashed a political storm while in Ethiopia last month when he announced that civil servants would be awarded salary increments from the $250-million accrued from diamond sales. But it turns out that the money is missing.
Mugabe made the announcement after being informed by the Mines Minister Obert Mpofu and Zimbabwe Mining Development Corporation (ZMDC) officials that $250-million of diamond sales had been transferred to treasury.
But Finance Minister Tendai Biti, backed by Prime Minister Morgan Tsvangirai, vehemently denied this and accused Mugabe of politicking by misleading civil servants, most of whom are earning about $150 a month.
At a government meeting on Tuesday, Biti and several MDC ministers confronted Mugabe over the issue, resulting in a heated debate, with Zanu-PF ministers reportedly coming to the defence of the veteran leader.
According to government insiders, the meeting was so heated that Mugabe had to ask for time out and requested Tsvangirai to chair the meeting for the first time since the inception of the inclusive government.
Mugabe is said to have left for about 45 minutes, and when he came back, is said to have allowed Tsvangirai to continue chairing the meeting.
A senior government official close to the highly secretive meeting said: "There was war in the meeting over the issue as Biti was insisting on getting proof that the money was transferred to treasury. MDC ministers challenged Mugabe on why they were refusing to have the diamond sales audited if there was nothing amiss. Tempers cooled down when Tsvangirai took over chairing of the meeting.
"Initially Mugabe resisted but he eventually agreed otherwise he would have left the ministers thinking that he was also involved. The audit will therefore be done."
There are several theories around the issue of the disappearing diamond money. One is that Mpofu and his ZMDC friends misled Mugabe and they were stunned when he announced that the money would be used to pay civil servants. This meant they had to produce proof that the money was there.
"They then hatched a plan to say Biti had been given the money but was refusing to pay civil servants. This backfired and the minister of mines is now under pressure. The second scenario is that probably Mugabe knows how the money was used and wants to protect Mpofu. It is now up to Mugabe to prove that he really does not know the whereabouts of the money.
"Mugabe is now in a corner. If he really was misled, as is being suggested even among Zanu-PF officials, then he has to act against Mpofu. The bottom line is that either way Mpofu will be victimised. If the kitchen really gets hot Mugabe will flee and sacrifice Mpofu and his boys at ZMDC."
Biti has already instructed the Auditor General and the Commissioner General of the Zimbabwe Revenue Authority to verify figures of diamond sales.
There have been reports that the diamond money was diverted to security departments without Biti’s knowledge, while some of the cash is believed to be funding Zanu-PF activities. Mugabe has also not explained where he sourced about $35-million he used to buy farming inputs now being distributed throughout the country.
A diamond dealer, who refused to be named, said ZMDC and ministry of mines officials had become so desperate to secure money to cover the $300-million gap that they were now selling diamonds cheaply to black market dealers.
"Most people are refusing to buy their diamonds because the Kimberley Process (KP) will impose sanctions on anybody found with Zimbabwe diamonds. The cartel of top officials who deliberately created problems with KP to sell the diamonds in the underworld is behind all this chaos but this has since backfired.
"Even the underworld is slowing down on Zimbabwe diamonds and at the same time they realise their desperation and are paying peanuts. The strategy for Mpofu and his ZMDC friends is to raise the missing $300-million quickly and they will announce on state television and newspapers that the money was always there, only that Biti did not want to disburse it.
"Dealers from Liberia, Israel, Dubai and China are being invited to come and buy the diamonds and Minister Biti must also investigate this. But now that the audit will be done everything will be in the open and the people who have been abusing diamond money will be exposed."
Biti has also proposed to meet with Mpofu to deal with the missing diamonds money.