Gondwe’s piecemeal arrears plan irks suppliers

The 2015/16 National Budget announced on Friday has provided no joy to small-scale businesses and the private sector, which are integral parts of the the economy, after Malawi Finance Minister Goodall Gondwe announced a piecemeal approach to settling arrears owed to the suppliers.
In his budget presentation, Gondwe said Treasury decided to pay arrears, which were approximately K155 billion as of June 30 2014, through issuance of zero coupons promissory notes, which were classified in three categories with the last tranche maturing in the 2017/18 financial year.

This is bad news to local small-scale businesses whose major trading partner is government and are reeling under threat of bankruptcy after government’s failure to pay them in time saddled them with huge loans from banks, which they are failing to service.
In his presentation, Gondwe disclosed that in the proposed K902 billion National Budget, Treasury was committing K50 billion for settlement of promissory notes issued to suppliers whose contracts have been audited by the Auditor General.
“Government arrears as at June 30 2014 stood at approximately K155 billion to be settled through zero-coupon promissory notes, which has already started. The 2014/15 budget had an allocation of K10 billion for settlement of arrears. The 2015/16 budget has an allocation of K50 billion for settlement of the maturing promissory notes,” Gondwe said.
But Nation on Sunday understands that some of the owed small-scale traders such as a group of local stationery suppliers plan to meet Gondwe over government’s huge unpaid domestic arrears.
Stationery businessperson Bexter Kitta, proprietor of Kitta General Suppliers at City Centre in Lilongwe and a member of Stationery Suppliers Association of Malawi, yesterday said the group has resolved to meet the minister over the matter.
“We need an explanation, but also an assurance that our money will be paid,” said Kitta.
He further revealed fears that soaring interests from bank loans, which government’s delayed payments often ignore, will suffocate his business and that of fellow stationery suppliers and put many out of business as banks move to reclaim the loans which are in several hundreds of millions of kwacha.
Kitta said some colleagues in stationery business have waited as long as six years for payments from government.
In a related development, speaking at the official opening of the 27th Malawi International Trade Fair in Blantyre, the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) vice-president Arthur Chirwa on Friday pleaded with the Peter Mutharika administration to expedite payments of debts government owe local businesspersons.
Chirwa said failure by government to settle its debts with local entrepreneurs is one of the major stumbling blocks towards accelerated private sector growth.
“The cash flow problems arise from the high cost of borrowing, the K157 billion arrears government owes the private sector and shrinkage of market as a result of lack of direct budget support to government,” he said.
Also speaking prior to the presentation of the budget, Mike Mlombwa, president of the Indigenous Businesspersons Association of Malawi (Ibam), cited the delayed arrears as a huge concern to local entrepreneurs.
In Parliament, Gondwe announced that overall deficit for the 2014/15 budget of K117.4 billion is projected to be higher than was budgeted by K10.3 billion, representing 3.8 percent of GDP.
He said this is, however, lower than the 2013/14 deficit which was at 6.2 percent of GDP.
Economic challenges, including the withdrawal of crucial budgetary support by majority Western donors saw Gondwe announcing a budget with drastically reduced government spending powers. —Additional reporting by Watipaso Mzungu