President Robert Mugabe has stopped enrolling students under the Presidential Scholarship Fund due to non-availability of funds to bankroll the programme.
The scheme's administrators admitted there was no money to pay for new students or meet the needs of the thousands already on the scheme despite Mugabe holding a $5 million wedding for his daughter this year.
Zanu PF also threw a $1 million party in February to celebrate its leader's 90th birthday and yet the government says it owes South African universities a similar amount.
Chris Mushowe, Fund director, revealed that the programme has suspended enrolling fresh students until it pays off debts to South African universities where beneficiaries are studying.
"We owe South African universities R11 million (US$1 million) hence we decided to suspended enrolling further students until we clear the arrears," Mushowe said.
Over 4,000 students are studying in South Africa, but in the last few years many have been exposed to poverty and other social ills as the cash-strapped government failed to pay living allowances to cater for their basic needs.
Some, especially girls, have been forced to resort to prostitution to raise money to survive.
"Because of lack of funding, we have stopped taking any student until we are done with the current lot because we don't have enough funding for the project," Mushowe said.
Mushowe said well wishers had to come to the rescue of students last year after they were chased out of their universities due to non-payment of tuition fees.
He then went on to blame former finance minister and MDC-T secretary general Tendai Biti for the problem.
"This is largely because since 2010, we did not receive enough funding from the treasury as the then minister of Finance, Tendai Biti, did not believe in the project," said Mushowe.
"In 2010, he allocated $3 million which cannot cater for the 15 universities accommodating our children in South Africa. In 2011, he allocated $2 million and in 2012, he allocated $1 million which is far from the budgeted expenditure per annum," Mushowe said.
The Manicaland provincial minister said he would be travelling to South Africa to negotiate with university authorities and land-lords over the payment plan for this year.
"I want to go and sign commitment documents with landlords and see how those students especially in KwaZulu Natal are living," he said.
"Yes at times we fail to give them pocket money to buy text books, or for their needs and demands, but no one has ever gone to sleep in a tavern because they have no accommodation, we try all our best to ensure that they have decent accommodation," he said
The Scholarship Programme was founded in 1995 to give academically gifted students from poor families a chance to study at South African universities.
But since the collapse of the local economy, the government has been finding it hard to pay tuition fees in time, resulting in some universities refusing to admit the students into their residency compounds.
Mushowe said government has negotiated with the universities to pay in instalments.
"Because of our long standing relationship with these universities, we were able to negotiate with them for a payment plan and we are going to pay. That is the reason why we are not taking anyone until we finish with this batch," he said.