Treasury has given financially stressed State produce trader Agricultural Development and Marketing Corporation (Admarc) a K23 billion bailout after repaying debts the parastatal owed three of the country’s commercial banks.
But Minister of Finance, Economic Planning and Development Goodall Gondwe, in his response to a question from a member of Parliament (MP) on why the State produce trader deserved such a financial bailout, said he was not amused as the decision will have a negative impact on the 2017/18 National Budget rolled out on July 1.
The minister said the decision means Treasury will have to revise allocations during the Mid-Year Budget Review early next year.
Gondwe made known the decision in response to a question from Nkhotakota South East MP Everson Makowa-Mwale (Malawi Congress Party-MCP) who stood on a matter of urgent public importance under Standing Order 69 to find out why the Admarc loans were cleared through Ministry of Agriculture, Irrigation and Water Development.
The legislator told the House that on October 27 this year, Treasury transferred the said funds to the Ministry of Agriculture, Irrigation and Water Development and issued a memo instructing the ministry to repay the loans on behalf of Admarc.
The three banks, whose names were withheld, received K16 billion, K4.7 billion and K2.4 billion through a payment made on November 7, according to Makowa-Mwale.
Gondwe told the House government repaid the loans, whose total amount he said he did not have on hand, to the commercial banks after Admarc failed to recover the money from the sale of maize in the 2016/17 financial year which ended on June 30.
The minister said in borrowing the funds, Admarc was acting on orders from government following a Malawi Vulnerability Assessment Committee (Mvac) report that about 6.4 million people faced hunger in the wake of reduced harvest after combined effects of drought and floods.
Said Gondwe: “In purchasing the maize, Admarc borrowed resources from commercial banks and government guaranteed [the loans]. The maize was bought from within the country, something like 98 000 metric tonnes [MT].”
About 33 000 MT of the maize has since been transferred to the Strategic Grain Reserves (SGR) to boost the stock in the silos, he said.
The minister said the government had to honour the guarantee because the proposal for Admarc to buy maize using loans came from them.
On why the loans were repaid through Ministry of Agriculture, Irrigation and Water Development, Gondwe said Treasury does not deal directly with Admarc, but its parent ministry which was sure to repay the loans directly to the commercial banks.
He admitted that the Mvac assessment misled the government and donors on the maize requirements and population in need of food aid in the 2016/17 growing year, resulting in decisions made to ask Admarc to buy maize using loans.
“The situation was unique. As a result of the wrong forecast, the decision was made. But I cannot say this was another form of Cashgate. At the time, it was clear what had to be done after what happened that year,” said Gondwe.
The minister bemoaned that the loan repayment would have a negative impact on the performance of the 2017/18 budget.
He said: “Am I proud, am I happy as Minister of Finance? Not at all. This means the budget will have to be looked at again.”
The bailout comes months after Admarc acting chief executive officer Margaret Roka-Mauwa disclosed in August that the institution was choked with a K37 billion debt after borrowing funds to buy maize.
She said the debt increased from K27 billion to K37 billion with interest charges pegged at K8 billion.
Roka –Mauwa attributed the situation to government’s failure to fulfil its obligations based on a memorandum of understanding (MoU) between Malawi Government and Admarc.
Currently, Admarc operates 700 markets and nine major depots nationwide. Out of the markets, 205 are classified as uneconomic.
Under the MoU arrangement, government is supposed to refund Admarc the cost of running the markets. However, this has not been happening to date.
Admarc was established as a statutory corporation in 1971. Until 1987, it was a sole buyer of smallholder produce, a monopoly that was removed with a controlled liberalisation of agricultural trade. In 2003, Admarc was incorporated as a limited liability company with government owning 99 percent of the shares.
Earlier this year, Admarc was also embroiled in a maize procurement scam that resulted in the removal of some of its senior managers. n