Taxpayers to cough K4.5bn for civil servants loans

Malawi taxpayers, already squeezed by the ever-rising cost of living, will have to cough K4.5 billion (about $11m) in the 2014/15 fiscal year to subsidise interest payments for civil servants’ personal loans from commercial banks.

The subsidy, according to budget document number three, draft 2014/15 financial statement, has been increased by 803 percent from last year’s allocated amount of K500 million (about $1.3m), even as the Ministry of Finance preaches austerity while gasping under a K107 billion budget shortfall and hundreds of billions in domestic debt and arrears.

The unprecedented subsidy is on the back of a domestic debt overhung of K340 billion and arrears amounting to K158 billion owed to suppliers of goods and services, which government has indicated will be paid by way of issuing zero coupon or discount bonds offered at prices lower than its face value.

Asked to justify the interest subsidy increase, Treasury spokesperson Nations Msowoya on Tuesday claimed the K4.5 billion figure—which appears in Annex 7: Summary of 2014 Estimates at Item Level (Recurrent and Capital Expenditures) in the Draft Financial Statement—is a mistake and will be revised downwards to an amount he says has not been finalised yet.

“We will revise it [the figure] downwards to reflect the amount that will go towards interest on civil servants loans. But we are yet to arrive at the final figure,” he said.

Civil Servants Trade Union (CSTU), a representative body of all public servants, currently entangled with government over a pay hike, could not comment on the allocation of personal loans’ interest subsidies.

CSTU president Servace Sakala on Thursday refused to comment on the matter, saying he was in a meeting that will last the whole day.

But CSTU, whose members will likely be beneficiaries of the windfall, are also demanding a 50 percent pay rise, countering government’s 24.4 percent, which, if implemented, could send the fiscal plan into disarray and push up the wage bill from the current K163.3 billion to over K170 billion.

But Finance, Economic Planning and Development Minister Goodall Gondwe should be wary that if the civil servants demands are taken on board, the fiscal plan could be distorted, which could put in jeopardy the assumptions in the budget such as the deficit, low inflation and interest rates, among others.

Surprisingly, the Budget and Finance Committee of Parliament, which tabled its comprehensive report in the House after collecting input from clusters by sectors, seems to have missed this huge allocation for personal loans for civil servants.

However, a governance commentator, Chris Chisoni, said government is caught between a rock and a hard place in that it has to balance between the needs of the civil servants and those of the people.

“If civil servants are not taken care of, their level of commitment will be minimal. But if government has to motivate its civil servants, then this amount is justified.

“Government has a responsibility to protect its civil servants from loan shacks. This, however, calls for government to ensure it takes responsibility to ensure that it remits the money paid back to government coffers,” he said.

On the flipside, Chisoni, who is also national coordinator of the Catholic Commission of Justice and Peace (CCJP), said this allocation may have a huge impact on the fiscal plan.

“Government is aiming high, but on the other hand, the priorities could be upside down. There is need for government to balance in terms of motivating civil servants and ensuring that the money allocated in the budget is put to proper use,” he said.

The civil service loan subsidy increase comes after members of Parliament (MPs), apart from a one-off K12 million subsidy in the K24 million personal motor vehicle loans from the banks, also forced the taxpayer to cough around 72 percent of interest on their credits.

The interest subsidy translated to an additional giveaway north of K18 million per legislator over the 54 months repayment period, bringing the total handout to an MP to K30 million when the K12 million honoraria part of the loan deal is added.

Over the payback time, the interest cushion amounts to K3.5 billion for all the 193 MPs based on the 35.5 percent interest rate that one commercial bank, where around 65 legislators got the loan, for example, has charged for the facility.

On the other hand, the K12 million honoraria has already cost taxpayers roughly K3.2 billion, bringing to K6.7 billion the total burden to the taxpayer.