Treasury borrows K100 billion from commercial banks to settle part of pension arrears

Report shows that the government owes pension K 134 billion in arrears, such that it has been paying the money in arrears.

This is happened soon after the K 1.98 trillion national budget that was lawmakers passed last week has deficit of K1.4 trillion, with Finance Minister Simplex Chithyola Banda hoping to cover it through borrowing.

Betchani Tchereni Secretary to the Treasury (ST) said there are a number of people who are yet to receive their pension dues.

The arrears have accumulated over a long time such that is necessary for the government to identify resources to pay the pension arrears. Said Tchereni.

Tchereni said they ways and means are the ones they use to front- load various liabilities / payments. This is one of them. They do have an excellent working relationship among financial institutions, (the) Reserve Bank of Malawi and Treasury. The resource will be covered via our normal revenue collection (methods). What they are doing is to frontload.

He also added that a careful scrutiny of the budget will reveal that the obligatory payments are met by revenues.

This is part of the obligatory payments, ORT (Other Recurrent Transaction) borrowing is always met by the revenue kitty.

He emphasized that people need to be pair their pension dues. Some have not received them for long time since they retired. Fairness demands that the government goes outside the box to get the resources.

Willy Kambwandira Centre for Social Accountability and Transparency Executive Director described government’s decision to borrow money to settle pension arrears as a manifestation of a deep fiscal crisis.

This is so because borrowing is an absurd way of spending taxpayer’s money, as borrowing for consumption is not only unwise but also not sustainable. The development only confirms that someone has been sleeping on the job by failing to remit pension funds accordingly, and now they want to place the burden on innocent Malawians.

He added that they must demand personal accountability on public officers responsible for remitting and managing pension funds. Otherwise, it is not in the spirit of austerity measure and (the interest of) public sector to borrow domestically with high interest to settle pension arrears. This is being insensitive and must be discouraged.

Bertha Chikadza Economics Association of Malawi President said despite the country’s debt levels are growing every year, there are some statutory obligations or protected expenditures that the government cannot default on.

Chikadza said these are the first to be considered on the government expenditures list.

She also mentioned that pension and gratuities among the priority expenditure areas. From the 2024-25 financial year budget, they know that they revenue is not enough to cover all budget expenditures and that they will borrow from both domestic and foreign markets to finance the deficit.

Chikadza concluded that the K100 billion borrowed is part of that. Unfortunately, these protected expenditures are growing quickly and larger every year, limiting the performance of the budget to payment of protected expenditures.

Last year it was observed that timely remittance of pension contributions remains a challenge for employers, with K31.1 billion in pension contribution arrears still outstanding as June 2023.

Report shows that pension contribution arreasrs had risen from the K23 billion that was reported in December 2022. The Reserve Bank of Malawi figures contained in the the June 2023 Financial Stability.

Chithyola Banda said he understood that some sectors would be worried about the budget deficits. He was saying this last week after the passing of the national budget.

Banda said he knows that one of the major worries of the people is how they can bridge the funding deficit and how they can intensify the domestic revenue collection initiative. The have hope in Malawi Revenue Authority (MRA). They have always beaten targets and the  believe that they will be able to meet the target and narrow the funding gap.

MRA has been given a target of K3.26 trillion, in the budget.

Banda also commented on the issue of delays to disburse resources to government ministries, departments and agencies ( MDAs,) saying the amount of funds disbursed would depend on the revenue collection pace.

He concluded that some MDAs complain about funds disbursement delays but they have set measures to intensify revenue collection in order to deal with this challenge.

Source:Times