Malawi’s arrears deal hailed

They have, however, asked government to put in place proper modalities to ensure that there are no problems encountered in the process.

Finance Minister Goodall Gondwe announced during the 2006/7 budget presentation that government plans to increase the amount of arrears paid as well as securitising the credit on a voluntary basis.

In this case, securitising means issuing certificates on the arrears which will indicate that after a specified period of time, an individual or organisation will be paid a certain amount of money in the same way government securities like treasury bills operate.

“A number of creditors have suggested that rather than wait for government to repay arrears by cash, the arrears could be securitised, since such securities could be traded for cash.

“We would be working on this possibility next year,” said Gondwe.

Government owes the country’s companies and utility organisations around K10 billion in unpaid bills for goods and services it purchased.

During the current fiscal year, government paid back K2 billion and has budgeted to pay K3 billion.

Society of Accounts in Malawi (Socam) Executive Director Hennox Mazengera said securitising arrears is a welcome move as it will help to keep companies in business.

He said the move will ensure easy access to financial resources for creditors as they can trade the securities with discount houses even when their days of maturity are far.

“Because a security is something that is credible, keeping it is like keeping real money, as it can be easily traded unlike just waiting for a longer period without knowing when you will be paid.

“Even if the interest on these securities is zero, the fact is that you have your money. That is what is important,” said Mazengera.

Delayed payments by government is said to have crippled the seed supply industry, utilities, construction sector and car dealers.

This created fears that the situation could create a cash flow squeeze capable of suppressing businesses performance.

Malawi Confederation of Chambers of Commerce and Industry Chief Executive, Chancellor Kaferapanjira, said the securities should boost industry output since companies will have access to loans with the backing of the securities.

First Merchant Bank Director, Sean O’Neill, while praising the strategy, asked government to clearly spell out how the exercise will be administered and the interest paid if businesses are to have confidence in the new deal. ‘ Nation.

July 2006
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