Already buckling under K100 billion arrears to the private sector, cash-strapped Capital Hill is now failing to pay firms under its signature Farm Input Subsidy Programme (Fisp).
Nation on Sunday has established that as at March 10 2015, government owed Fisp fertiliser and seed suppliers an accumulated K30.5 billion.
Of the amount, K24 billion are unpaid bills for the 2014/15 season whereas the remaining K6.5 billion are Fisp arrears from the 2013/14 financial year, according to a 29th situation report dated March 10 2015 from the Fisp Logistics Unit under the Ministry of Agriculture that Nation on Sunday has seen. The bill includes unpaid invoices for fertiliser, legumes and maize seeds as well as transportation.
Because government has taken more than the 60-day period from the day of delivery during which it is supposed to pay suppliers, Capital Hill will have to part with more billions in interest on the outstanding amount, thereby sinking Lilongwe in more debt.
Interest rates on the local money market are mostly in the 35-40 percent range.
On fertiliser alone, the Fisp Logistics Unit report noted that all the commissioned fertiliser has been invoiced and the total amount was $84 166 817 (about K38 billion).
Of the amount invoiced, said the report, 42 percent remains unpaid, adding that of the unsettled sum, $29 095 548 (about K13 billion) has been unpaid for more than 60 days and will become a subject of interest claims when eventually paid.
And thanks to the interest costs, government may not benefit from the exchange rate gains that came with a strengthening kwacha.
“The present kwacha cost of fertiliser to government has dropped considerably because of the shift in exchange rate between the date of supply and present. However, any perceived advantage in this to government will soon be swallowed up by interest claims,” said the report.
The report also noted an increase in amount owed to companies for the supply of seed as government has only paid $7 165 608 (K3.2 billion) against a submitted invoice of $18 750 695 (about K8.4 billion), meaning that around K5.2 billion remains unpaid.
Government allocated K50.8 billion for Fisp in the current financial year, but the figure has now jumped to the previous year levels of over K60 billion.
This increase came after K10 billion was added to the Fisp budget at mid-year to support the flood disaster-induced replanting to replace washed away crops.
Foster Malumbe chief executive officer of Admarc, one of the suppliers, and Smallholder Fertiliser Revolving Fund of Malawi (SFFRFM) general manager Andrew Kalinde confirmed that government owes suppliers, but referred the paper to the Ministry of Agriculture for details.
“We are owed a certain amount of money, but at the moment I cannot comment on exactly how much we are owed,” said Malumbe.
On his part, SFRFM boss Kalinde also acknowledged that suppliers were owed money from the two budgets, but referred the matter back to the Logistics Unit.
Ministry of Agriculture Principal Secretary Erica Maganga, while acknowledging that government owes several suppliers money from the previous budget and the current fiscal year, said government was geared to offset all arrears.
“We have just received this week K7 billion to pay some of the suppliers. In July, we will also get another allocation and we are optimistic and certain that by the end of the year, we will wipe out all debt,” she said.
Maganga, however, pushed to Treasury questions on the delayed payments to suppliers in the 2013/14 budget, as it deals with issues of arrears and any possible interests accrued due to delays to pay the suppliers.
Ministry of Finance spokesperson Nations Msowoya cited donor aid withdrawal as cause of the delay to pay last year’s arrears. But he said government, which is implementing a zero-aid budget, will eventually pay those owed within this year’s fiscal year. “The arrears for 2013/14 were mainly due to the seed component of the Fisp programme. Previously, seeds were being paid by development partners, however, in 2013/14 fiscal year, the donors under-provided on this component and government could not pay them [suppliers] in that fiscal year because we did not budget for this expenditure on the understanding that donors would take it up. Unfortunately, donors changed their mind and government had to carry it forward as part of the arrears.
“Government is currently in the process of clearing these arrears. For the 2014/15 fiscal year, since the fiscal year is not over yet, we cannot classify these as arrears as they will be paid within this year,” said Msowoya.
He is on record as saying government, which also last year owed a Zambian firm K3 billion in arrears for supplying seed and fertiliser, would settle the arrears over two financial years.
Since donors—who traditionally fund 40 percent of Malawi’s national budget—pulled out budgetary support on the back of Cashgate in which billions were stolen from Treasury, government has struggled to meet its obligations, including funding its departments.
Salary hike pressures from the public service—some of which it has succumbed to—have also worsened the country’s fiscal outlook and could hit hard economic growth for this year and 2016. n