Treasury frowns at growing arrears

• Warns MDAs against accumulation

Treasury has warned government ministries, departments and agencies (MDAs) against committing to financial contracts without consulting Ministry of Finance, Economic Planning and Development, saying the move is leading to unsustainable accumulation of arrears.

Secretary to the Treasury (ST) Ben Botolo sounded the warning in an interview yesterday in the wake of a National Audit Office (NAO) audit of the Malawi Government for the year ended June 30 2017 which, among others, showed that verified arrears rose to K23.3 billion or 126 percent compared to K10.3 billion in the 2015/16 financial year.

The Auditor General observed that government spends a lot of money in accumulated interest due to contractors because of late settlement.

The audit reviewed contract documents at the Ministry of Education, Science and Technology (MoEST) which revealed interest claims amounting to K1.5 billion for an uncompleted project.

In yesterday’s interview, Botolo said there is need to emphasise project management with MDAs to avoid unnecessary payments which in turn derails development.

He said: “We need to know when we have enough and manage what we have. There is no need to commit government to contracts without money, if there is no money such projects need not to start.”

Treasury instructions demand that every project should have a signed contract outlining the terms and conditions and stipulating the general and specific conditions of the contract price.

However, from the audit report, it has emerged that most of the said projects are unfinished and the contractors charge interest just to cover up for the time lost.

Botolo said government is also to blame in some cases where MDAs go into contractual agreements without checking if Treasury has money.

He said: “There is a contract in the first place, sometimes we agree that we will give them money but we don’t do that. In some cases, the contracted companies go to banks to borrow money to finish the project and then charges the government the interest. It is this charging that we do not want.”

Reacting to the development, Malawi Economic Justice Network (Mejn) executive director Dalitso Kubalasa said the trend is unacceptable and should be punishable by law where controlling officers accrue such arrears.

“Why should we be accruing such penalties and interests due to some people’s gross inefficiencies while in the same breath failing to absorb such scarce but available billions across such important sectors like agriculture, education, health, Roads Fund Administration, just to mention a few,” he said.

Kubalasa said these were important sectors that are so crucial to help make a huge difference to the economy and the lives of the masses.

In the 2018/19 National Budget Statement, Minister of Finance, Economic Planning and Development Goodal Gondwe projected K183 billion in interest payments, of which K14.3 billion was interest on foreign loans and the remaining K168.6 billion is for domestic debt and arrears.

The trend has made government to spend a lot of resources and not realize value for money on the said contracts.

Various MDAs continue to overlook observance of well-established procurement systems and procedures, resulting in accumulation of arrears.

In the 2016/17, a total of K18.9 billion in arrears was verified and recommended for payment, representing 81 percent of accumulated arrears in the year which is lower by 19.9 percent as compared to last year’s amount of K10.2 billion.

The unverified arrears in the year amounted to K4.4 billion, representing 19 percent.

Accumulation of arrears and interest claims has also been observed in the construction industry.

The 2017 Construction Sector Transparency Initiative Assurance Report found that long after some roads projects were initiated with funding from loans, the cost had doubled or tripled due to delays in construction.

The report noted that cost-overruns and delayed funding to locally resourced projects were the major factors affecting the construction industry.

In April this year, the International Monetary Fund (IMF) also warned that continued accumulation of private sector arrears by government puts the public sector in a weak fiscal position, thereby threatening the ability to service debt.

In 2015/16 fiscal year, government announced its decision to settle arrears which stood at K155 billion as of June 30 2014, through issuance of zero coupons promissory notes. But by April this year, the arrears soared to K206 billion, according to the Malawi Confederation of Chambers of Commerce and Industry (MCCCI).

In August this year, Treasury introduced a new expenditure control system to curb reckless spending of public funds by MDAs in a bid to check growing arrears owed to suppliers. Under the new system, controlling officers in MDAs risk suspension or dismissal if they spend beyond what they committed to on a monthly basis.