Malawi lags on arrears management strategy
Malawi Government has missed the deadline for approving an arrears management strategy agreed with the International Monetary Fund (IMF) amid concerns from economist that Treasury’s dependence on promissory notes is worsening the debt burden.
In the Memorandum of Economic and Fiscal Policies the government, through the Ministry of Finance and Economic Affairs, signed with the Bretton Woods institution, Cabinet was supposed to approve by the end of February 2023 an arrears’ clearing and prevention strategy.
According to the memorandum published last November, the strategy, which is currently under development with support from IMF staff, was expected to promote fiscal discipline in the public sector.
However, the Cabinet has not approved the strategy which has been in development since last year.
In an interview yesterday, Minister of Finance and Economic Affairs Sosten Gwengwe said the Tonse Alliance administration remains committed to its obligations with the IMF, adding that the government has achieved most of the requirements in the programme.
“Government has been issuing promissory notes in the past three years to clear the arrears owed,” he said without elaborating on the measures the government has taken to prevent the accumulation of further arrears.
Citing figures from the Treasury, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira said the government had paid K256 billion to clear arrears owed to the private sector.
As of January 2023, the government owed the private sector about K40-50 billion in unpaid arrears, but most of these were contested claims where the government wanted to vet before settling.
Kaferapanjira, who is also chief economic adviser to President Lazarus Chakwera, commended the government for issuing the promissory notes, saying the decision helped local businesses improve their liquidity.
But he cautioned that the excessive use of promissory notes could worsen the country’s fiscal deficits.
In his budget statement for the 2023/24 fiscal year, Gwengwe said the government incurred heavy deficits in the 2023-24 financial year because it had to pay back promissory notes that were maturing on March 31 this year.
Reacting to the developments, Malawi University of Business and Applied Sciences associate professor of economics Betchani Tchereni said the government’s failure to meet the deadline could negatively affect its performance in the upcoming review.
He said: “The IMF board might think the government is not serious with its commitments in the programme. The IMF board is very particular with its deadlines.
“Delaying [the approval of the arrears’ repayment and prevention strategy] could undermine the government’s capacity to secure more IMF-supported programmes in the future.”
The IMF will review the Rapid Credit Facility (RCF) that began in November last year. The review will likely inform whether Malawi qualifies for a new Extended Credit Facility (ECF) following the cancellation of the previous programme in 2021.
The Tonse Alliance cancelled the previous ECF signed by the former Democratic Progressive Party administration to align the programme with the current regime’s development agenda.
Negotiations for a new ECF programme have stalled pending the development of a debt restructuring strategy.
