The International Monetary Fund (IMF) has said continued accumulation of private sector arrears by government puts the government at a weak fiscal position thereby threatening its ability to service debt.
In its March 2018 Policy Paper on macroeconomic developments and prospects in low-income developing countries—2018, IMF says this is contributing to the rising stress levels responsible for deteriorating loan quality and tighter fund-ing conditions.
“Financial sector stress need not result in a financial sector crisis, but flags the need for intensified regulatory attention and (potentially) intervention to manage stresses and maintain financial stability,” said IMF in the statement.
In an interview on Wednesday, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief execu-tive officer Chancellor Kaferapanjira said while government has over the past two years been paying arrears through promissory notes, there have been new arrears accruing from 2014 to date, which are yet to be settled.
“Government has been over borrowing but is has not been taking the issue of arrears into consideration as the issu-ance of zero-coupon bonds also added to the pile of government debts. Again, although government has been paying the arrears for the past two years, it still has a lot more to settle as some coupons are yet to mature.
“This means that because government only took into consideration arrears of up to June 30 2014, from then going forward, it has still been accruing new arrears with a lot of money owed to Farm Input Subsidy Programme (Fisp) sup-pliers,” he said, adding the chamber is yet to audit the total cost of the new arrears owed by government.
“We have some challenges in key sectors like seed and pharmaceutical suppliers as well as the rental property sector. For example, rental firms are failing to expand and work on their buildings while more other buildings are still being built and you cannot compete like that. We need to have an allocation in the budget,” he said.
In his 2017/18 National Budget Statement, Finance, Economic Planning and Development Minister Goodall Gondwe said the country had reached a very critical economic point when its main preoccupation will be to manage its re-sources very carefully.
In view of the accumulation of domestic debt and a large amount of arrears of K155 billion as at June 2014, Gondwe said budgetary support that the country has received must all go into the repayment of debt and the settlement of arrears.
Government arrears to private sector have since remained a huge concern to local business.
Government first announced its decision to pay arrears which were about K155 billion as of June 30 2014 through issu-ance of zero coupons promissory notes in the 2015/16 fiscal year.