Ministry of Finance, Economic Planning and Decentralisation has rolled out new guidelines restricting government promissory notes to verified liabilities to strengthen debt management, improve fiscal discipline and enhance transparency.
But economists and public finance experts have cautioned that while the guidelines could improve management and transparency of promissory notes, they may not resolve the underlying challenge of accumulation of government arrears.
In a statement accompanying the guidelines, Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha said the framework will ensure that promissory notes are issued only for justified and approved obligations while reducing risks associated with unregulated accumulation of public debt.
“These guidelines are intended to ensure that promissory notes are utilised in a prudent, transparent and accountable manner,” he said.
The guidelines have set a minimum threshold of K300 million for promissory notes, with smaller obligations to be settled through normal budget appropriations while prohibiting their use for unverified claims, ongoing court cases and new procurement contracts.
Under the new framework, promissory notes below K3 billion will have a maximum maturity period of one year while those worth between K3 billion and K10 billion will have up to two years of maturity period while notes exceeding K10 billion will have a maximum maturity period of up to three years, with no instrument allowed to mature beyond three years.
The government also states that all promissory notes will be denominated in kwacha and that except those issued for Reserve Bank of Malawi (RBM) recapitalisation, will not attract interest, with any interest on the central bank’s notes to be agreed between the Minister of Finance, Economic Planning and Decentralisation and the RBM.
The guidelines further require the RBM to automatically redeem promissory notes on maturity while allowing early redemption, conversion into other public debt instruments such as Treasury bonds and transferability, subject to registration in the central securities depository.
Reacting to the guidelines, Bankers Association of Malawi president Phillip Madinga said that while the new guidelines do not guarantee payment of government promissory notes, they are expected to improve banks’ confidence in accepting the instruments.
He said the framework introduces clearer approval, recording and monitoring procedures that reduce governance and operational risks for financiers.
“The guidelines do not guarantee payment, but they make promissory notes a more transparent and accountable government instrument,” said Madinga, who is also Standard Bank Malawi plc chief executive.
Public finance consultant Dalitso Kabalasa described the new guidelines as a long-overdue reform that should improve transparency and accountability in managing government payment obligations.
However, he cautioned that the framework alone will not solve delayed payments unless government strengthens domestic resource mobilisation, spending discipline and adherence to the new rules.
Economics Association of Malawi president Bertha Bangara-Chikadza said while clear approval procedures and enhanced reporting requirements will reinforce oversight and public scrutiny of government liabilities, the guidelines on their own cannot guarantee fiscal discipline.
