ABOUT E1BN TO BE PAID TO OWED SUPPLIERS - FINANCE MINISTER

MBABANE – Government suppliers and service providers will be paid their arrears of about E1 billion in the next two weeks.

This was disclosed by the Minister of Finance, Neal Rijkenberg, when sought for comment on the reasoning behind the loans that government was taking. The minister explained that government was not taking loans willy-nilly. He said: “There seems to be a narrative that seems to say government is loaning money willy-nilly with all these loans (being reported). It just happens that at this time of the year, when you are bringing all the new loans that you are planning to do for the year to Parliament and also discussing them, they are having last year’s loans.”

Rijkenberg said this ended up looking like there were exorbitant amounts that government was seeking to source. He said this was contrary to the situation on the ground as government had become better in managing its resources. The minister said what was happening now was that the administration was sourcing money before suppliers and service providers were paid. He said government was making sure that it took the loans it needed according to the approved national budget. He said government could not spend money outside the budget and as such, it always spent less than what was approved as per the auditor general’s (AG) reports.

Expenditure

Rijkenberg said the administration always contained its expenditure to be within the ceilings of the budget. He explained that there were three types of loans that government sought and namely are; capital project loans, budget support loans and domestic market loans. He said the Mkhondvo - Ngwavuma Water Augmentation Programme Phase 1 A, which shall be financed through the African Development Bank loan worth E2.684 billion, would bring great impact to low income earners. Making an example, he said last year, the farming groups which benefitted from Eswatini Water and Agricultural Development Enterprise (ESWADE) were over 20 000 shareholders of the groups. These, he said, on average each received E15 000. Rijkenberg said such a project was funded 100 per cent by government and the tax collected from its operations was sufficient to repay the loan over time.

“There is a lot of economic activity that takes place and they all get dividends from the project. Direct tax from this project, pay-as-you-earn (PAYE), company tax and value added tax (VAT) is enough to pay the loan. Such loans are not a burden to government at all as the major taxes collected pay them off after the window period of three to five years,” he said. Furthermore, he explained that the E5 billion ‘loan’ was a bond programme for the forthcoming budgets over the next few years. He said this loan would also be used to settle outstanding arrears to suppliers and government service providers. He said a large chunk of the money would be for the national budget going forward and would also cushion the country’s current bond programme. Rijkenberg said the current arrears were about E1 billion and they included projects that had to be started by government through the Regional Development Fund (RDF) and Micro-projects. “We hope all suppliers will have been cleared by next week,” Rijkenberg said.

Exceeding

The minister recently tabled a Bill in Parliament seeking it to authorise him to raise loans in the form of several bonds not exceeding R5 billion (equivalent to E5 billion), through the bond issuance programme listed with the Johannesburg Stock Exchange (JSE) for fiscal budget support. In a government gazette, dated April 21, 2022, the Bill stated that the minister was authorised to enter into an agreement with the lenders for the purpose of raising loans not exceeding E5 billion, over a five-year tenure in tranches, informed by the government budgetary requirements. The gazette further stated that the loans shall be raised through various bonds issued by the Eswatini Government and listed on the JSE. It further stated that the borrower (being Eswatini Government), would issue a pricing supplement indicating the tenure and amount for each loan to be repaid, interest payment dates and the final redemption date, including the interest to be paid at the end of the loan.

The minister explained that the E5 billion bond programme was tabled in Parliament last Friday and was still not an Act. It is worth noting that issuing a bond is one way for companies and governments to raise money. Investopedia states that a bond functions as a loan between an investor and corporation (or government). The investor agrees to give the corporation (or government) a certain amount of money for a specific period of time. In exchange, the investor receives periodic interest payments. The Central Bank of Eswatini (CBE) website also states that government issues bonds to raise money needed to meet longer-term budgetary needs and also in order to develop the domestic capital market, as they provide additional investment avenues for both institutional and individual investors.

The minister also explained that government had not exhausted a number of E2 billion bond programmes which were passed by the House through Treasury Bills. Instead, he said, they had opted for other avenues to allow local businesses to grow as well through exploiting the bonds. This publication reported about a month ago that the country’s debt stock is set to reach the second highest percentage in 10 years, the latest being a loan of  E1.2 billion from the International Bank for Reconstruction and Development (IBRD)-World Bank. Contracting this loan will increase the total debt to E28.96 billion, which is equivalent to about 40.45 per cent of the gross domestic product (GDP). This means that the debt stock has exceeded the threshold level of 35 per cent of the GDP by 5.45 per cent.

The public debt threshold is estimated by assessing the relationship between public debt and economic growth and determines the tipping point beyond which increases in public debt adversely affect economic growth. As at the end of December 31, 2021, preliminary debt figures indicated that the total public debt stood at E27.76 billion, which is equivalent to 38.77 per cent of GDP. Generally, government debt as a per cent of GDP, is used by investors to measure a country’s ability to make future repayments on its debt, thus affecting the country’s borrowing costs and government bond yields.

Congratulate

In reaction to this, Business Eswatini (BE) Chief Executive Officer (CEO) Nathi Dlamini said: “We would like to congratulate the minister for securing the loans. It must have been an extremely tall order for him. Our country’s track record of fiscal stewardship has traditionally leaned on the side of poor for many years, even though we are aware that the approach by the current administration seeks to change all that.” He said BE hoped that the money would be put to good use and that the government’s liabilities with the private sector would be settled first. Dlamini said if an opinion was to be sought from BE by government, they would recommend that all the borrowed funds be used to settle debts and whatever was left, if any, be used on infrastructure projects to supercharge the economy. He said the country’s economy was slowly improving thankfully, but not nearly enough to create the jobs needed by the country, especially its large unemployed youth.

Post your comment

Your name:

Your e-mail address:

Add your comments:

Please enter the code you see in the image:

Image:

Code: