The Treasury has borrowed K100 billion from commercial banks to settle part of pension arrears.
It is reported that the government owes pensioners K134 billion in arrears, such that it has been paying the money in arrears.
This is happening when the K5.98 trillion national budget that lawmakers passed last week has a deficit of K1.4 trillion, with Finance Minister Simplex Chithyola Banda hoping to cover it through borrowing.
According to Secretary to the Treasury (ST) Betchani Tchereni, there are a number of people who are yet to receive their pension dues.
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He said the arrears have accumulated over a long time such that it is necessary for the government to identify resources to pay the pension arrears.
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“Our ways and means are the ones we use to front-load various liabilities/payments. This is one of them. We do have an excellent working relationship among financial institutions, [the] Reserve Bank of Malawi and Treasury. The resources will be covered via our normal revenue collection [methods]. What we are doing is to frontload,” Tchereni said.
The ST added that a careful scrutiny of the budget will reveal that the obligatory payments are met by revenues.
“This is part of our obligatory payments… ORT [Other Recurrent Transactions] borrowing is always met by our revenue kitty.
“It must be emphasised that people need to be paid their pension dues. Some have not received them for a long time since they retired. Fairness demands that the government goes outside the box to get the resources,” he added.
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Meanwhile, Centre for Social Accountability and Transparency Executive Director Willy Kambwandira has described government’s decision to borrow money to settle pension arrears as a manifestation of “a deep fiscal crisis”.
“This is because borrowing is an absurd way of spending taxpayers 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.
“We must demand personal accountability on public officers responsible for remitting and managing pension funds. Otherwise, it is not in the spirit of austerity measures and [the interest of] public sectors to borrow domestically with high interests to settle pension arrears. This is being insensitive and must be discouraged,” Kambwandira said.
However, Economics Association of Malawi President Bertha Chikadza said despite that the country’s debt levels are growing every year, there are some statutory obligations or protected expenditures that the government cannot default on.
She said these are the first to be considered on the government expenditures list.
Chikadza cited pension and gratuities among the priority expenditure areas.
“From the 2024-25 financial year budget, we know that our revenue is not enough to cover all budget expenditures and that we will borrow from both domestic and foreign markets to finance the deficit.
“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,” Chikadza said.
As of 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 at June 2023.
Reserve Bank of Malawi figures contained in the June 2023 Financial Stability Report showed that pension contribution arrears had risen from the K23 billion that was reported in December 2022.
After the passing of the national budget last week, Chithyola Banda said he understood that some sectors would be worried about budget deficits.
“I know that one of the major worries of the people is how we can bridge the funding deficit and how we can intensify the domestic revenue collection initiative. We have hope in Malawi Revenue Authority (MRA). They have always beaten targets and we believe that they will be able to meet the target and narrow the funding gap,” Chithyola Banda said.
In the budget, MRA has been given a target of K3.26 trillion.
And, commenting on the issue of delays to disburse resources to government ministries, departments and agencies (MDAs), Chithyola Banda said the amount of funds disbursed would depend on the revenue collection’ pace.
“It’s true, some MDAs complain about funds disbursement delays but we have set measures to intensify revenue collection in order to deal with this challenge,” he said.
