GOVT FACES CASH FLOW CRISIS, FAILING TO PAY E700M ARREARS

MANZINI – There is a cash flow crisis in the country, which has led to government failing to pay arrears reportedly in excess of E700 million.

A cash flow shortage, according to Growthforce, happens when more money is flowing out of a business and or an establishment than it is coming in. As such, the website, which offers expert information on financial management, states that this means that during a cash flow shortage, an entity might not have enough money to cover payroll or other operating expenses.
According to impeccable sources, government has in recent weeks been stretched in meeting its financial obligations, which include settling arrears for local private hospitals and doctors of over E220 million for services rendered under Phalala Fund.

Arrears

The sources claimed that there were arrears of over E480 million, which were owed to suppliers and service providers as well. They supposed that the debts had accrued in the third quarter of this financial year as most of the resources needed in the country had been poured towards resuscitating the collapsed health sector. This is because in recent months, government has been settling arrears of the Ministry of Health to ensure that suppliers were catered for while also ensuring that there was activity in the economy. The sources proximated the arrears to be in the region of E700 million and claimed that the delay in their payment could lead to long-term challenges.

Budgets

“Inasmuch as government budgets for each financial year, the revenue inflow is not consistent with the demands,” the source said. The source explained that when government set its budget for the year, it projected on revenue collections, which included the Southern Africa Customs Union (SACU) receipts, which were received quarterly, tax collection and other streams of income, like fines. The source explained that currently, the demands by the various sectors of government were beyond what was available. He said the demands were in all the sectors government rendered services in and included the payments of grants (elderly, disability, free primary education (FPE) and the orphaned and vulnerable children (OVCs). The source said there was also the issue of scholarships and ensuring the smooth flow of government operations, which needed to be catered for at all instances.

The source said all these services needed government to regularly disburse money towards ensuring that they were flowing without hindrance and when a cash flow crisis ensued, it destabilised these services. “If the cash flow challenge persists for a longer period, it leads to issues like schools complaining that they have not been paid their grants and or other sectors voicing out their challenges in terms of financing,” the source explained.

Acknowledged

The Minister of Finance, Neal Rijkenberg, acknowledged that there was a cash flow crisis, but said it would be sorted out this week. The minister was sought for comment to establish if the country was facing a cash flow challenge, what could be the solution to this predicament and when was it anticipated to be sorted out. Rijkenberg acknowledged that there was a cash flow challenge and said government’s obligations had been stretched in recent weeks, while other ministries had required more resources to deal with their challenges. However, he said this would be a thing of the past, as the country would be getting its quarterly share of the Southern Africa Customs Union (SACU) receipts. Rijkenberg said: “We shall be receiving SACU and we shall be paying suppliers if all goes well from next week.”

He acknowledged that the amount owed to suppliers was estimated to be about E700 million. The minister acknowledged that another challenge that the ministry faced was that the Johannesburg Stock Exchange (JSE) investment was yet to yield positive results. “It has been brought to my attention that we may see returns from it in the upcoming weeks as well. That will bring huge relief to the cash flow of government,” the minister said. It is worth noting that in the 2022 national budget, the ministry planned to raise money through the JSE; however, the legislation to facilitate this took a while through Parliament as there were time delays in getting the listing done. On the other hand, Rijkenberg explained that the first and last quarter in the budget cycle in most instances had heavier payments to be made, because the budget opened which put pressure on spending and it was the same case when it closed.

Receipts

In July last year, government paid its suppliers and service providers arrears of about E2.8 billion after it had received provisional tax payments, which came through and contributed to about E800 million. Rijkenberg, at the time, said there was also the SACU receipts which came through, which was around E3 billion. On the other hand, the International Monetary Fund (IMF) states that Eswatini’s economic prospects for 2023 and 2024 are favourable, partly because of higher SACU revenues. It was highlighted that the government budget proposed an expenditure increase, as SACU revenues doubled in 2023. This projected increase in government expenditure, it was said, supported economic activity and external funding of major capital projects, such as the Mkhondvo-Ngwavuma project had a boost to both demand and supply. The wholesale and retail, construction and public administration sectors were all expected to benefit from higher public spending, while the tourism sector was expected to continue its recovery and remittances were said to be picking up.

However, the IMF stated that difficulties in the external and domestic environments constrained the country’s growth potential. It was said although real gross domestic product (GDP) growth was expected to reach three per cent in 2023 and 2.9 per cent in 2024; global turmoil was likely to dampen economic activity. “With Ukraine and Russia accounting for over 30 per cent of the global supply of food and commodities (grains, oils, fertilisers, and energy), the ongoing war in Ukraine will continue to affect global output, disrupt supply chains and raise commodity prices,” read part of the IMF’s outlook.

It was said that Eswatini was faced with multiple development challenges to ensure inclusive, sustainable, and resilient economic growth. Central among these, according to the IMF, was Eswatini’s unsustainable public sector-driven growth model, which had trapped the country in a low growth and high poverty and inequality equilibrium and crowded out investments in productive sectors and private sector development. The IMF further said fluctuations in SACU revenues and weak domestic revenue mobilisation, with the domestic tax-to-GDP ratio ranging from 12 per cent to 15 per cent; attributable to a narrow tax base, high informality, and Value-Added Tax (VAT) exemptions had contributed to fiscal deficits, complicated fiscal management, and reduced resources for service delivery and investments in job creation.

Credit

“Access to credit for small and medium enterprises (SMEs) is constrained by limited digitisation of enterprise cash flows, weak secured transaction and insolvency regimes, high collateral requirements and limited quality of credit information. Women SMEs are particularly impacted by lack of access to credit. “A 2016-17 survey found that only 10 per cent of all micro, small and medium enterprises (MSME) owners in Eswatini accessed formal credit to start their businesses, while 90 per cent reported starting their businesses using their savings, borrowing from friends and family, informal credit and grants. Many women struggle to find access to credit to launch or grow their businesses. In 2020, only 13 per cent of women-owned businesses accessed formal credit versus 19 per cent of male-owned enterprises,” reads the outlook in part.

Challenge

It is worth noting that the country experienced a cash flow challenge at the height of the COVID-19 pandemic, which resulted in government seeking financial assistance of about E2.06 billion when converted into yesterday’s rate, which stood at US$1 being equivalent to E18.76. When the assistance was sought, it was equated by IMF to being equivalent to about US$110.4 million (SDR78.5 million). It was sought from the IMF’s Rapid Financing Instrument (RFI) to meet the urgent balance of payment needs, stemming from the COVID-19 pandemic.

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