He was speaking on Monday morning in Kadoma while addressing town clerks, secretaries and chief executive officers from all 92 local authorities at a Local Government Transformational Workshop.
Muguti said central government could not expect councils to meet performance targets and deliver services while its own departments failed to settle what they owe.
“We should all understand that the moment central government does not pay bills to local government, we are removing spanners and screws on a car’s wheel, and it will be in an accident,” he said.
“We cannot have a situation where we are making you sign performance contracts, and then we do not deliver on those contracts.
“It has to balance, and this is where we as central government have been making a mistake.”
His remarks come amid long-standing concerns over unpaid rates, water bills and other service charges owed to councils by government departments.
Under the Urban Councils Act, councils have powers to recover unpaid rates, including charging interest on arrears and pursuing legal recovery in qualifying cases.