The build-up of trade debtors has worsened the liquidity position of most parastatals, a situation that has impacted on their working capital, a government annual report has shown.
The situation, which was most prevalent among the water boards and other trading parastatals, forced many of them to turn to banks for overdrafts to cushion their cash flows while others resorted to deferring payment of tax obligations, pensions and other trade payables.
Out of the 19 parastatals the 2019 Annual Economic Report has analysed, 10 or 52 percent, have their liquidity positions failing to cover their current liabilities.
While the ideal liquidity ratio depends on the state of current liabilities, financial analysts generally agree that a liquidity ratio of more than 2:1 is desirable.
As at December 2018, the report shows that of Blantyre Water Board (BWB)’s luquidity position continued to be weak and below desirable levels at a ratio of 0.37:1, meaning that the board was still unable to cover its current liabilities as they fall due.
During the same period, the liquidity positions of Central Region Water Board (0.73:1), Northern Region Water Board (NRWB) (1:1), Malawi Housing Corporation (0.62:1), National Oil Company of Malawi (1:1), Malawi Post Corporation (0.58: 1), Lilongwe Handling Company (1.87:1), Malawi Institute of Management and Airport Development Limited at 1.13: 1, were barely liquid.
Despite having a healthy liquidity position at 3.09:1, debt collection days for Electricity Generation Company of Malawi (Egenco) has deteriorated to 512 days at mid-year from 218 days in June 2018, largely due to huge liabilities, with sole power supplier Electricity Supply Corporation (Escom) alone owing K34 billion as at December 31 2018 in untimely servicing of electricity bills.
Of the utility suppliers, NRWB has had its debt position worsened with public institutions owing the parastatal K5.1 billion while Lilongwe Water Board is owed K5.2 billion by public institutions.
The report shows that cash flow challenges have, on the other hand, made it difficult for Southern Region Water Board (SRWB) to remit value added tax (VAT) in excess of K1.4 billion.
However, this is despite 15 or 78 percent out of the 19 parastatals registering profits and surpluses.
Treasury—which owns the companies on government’s behalf—says as at mid-year, the statutory bodies generated less than half of the overall approved revenues while expenditures also followed similar trends.
Minister of Finance, Economic Planning and Development Joseph Mwanamvekha earlier observed that there are some institutions that are creating contingent liabilities on the part of government, posing risks to the implementation of national budgets.
Finance and corporate strategy expert James Kamwachale-Khomba earlier faulted the underperformance on leadership and management style of the public enterprises.
Economist Gilbert Kachamba in an interview yesterday said there is a lot of wastage of resources and mismanagement in a number of parastatals, which needs reforms and restructuring.
“Gearing ratio for these parastatals must be reduced at all cost, otherwise instead of bringing revenue, they will be consuming the little resources that government could have used for other activities,” he said.