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GOVT IN TIGHT FINANCIAL SPOT, OWES SUPPLIERS E1.4BN

12/06/2024 12:01:00 Stanley Khumalo

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MANZINI – Government is in a tight spot, as arrears have increased while the country expects SACU receipts next month.

It is reported that the State is facing financial constraints such that its arrears have shot up to about E1.4 billion. The limited financial resources, according to sources, are born from the fact that the country receives its Southern African Customs Union (SACU) receipts quarterly. The sources said because the country was a month away from receiving the SACU receipts, it was now in a tight spot in terms of its expenditure. Insiders informed this publication that the limited resources had repercussions in that a number of the financial obligations were not being met, including the payment of suppliers and service providers, which hindered service delivery.

Accrued

It was claimed that the debt had accrued from last year June to date, as some suppliers and service providers were not paid 30 days after filing their invoices, while others had not been paid, because they were yet to deliver all that was expected of them, which resulted in the delay in payments. The sources said a larger chunk of the resources the country had were used in a bid to resuscitate the collapsed health sector, which had seen public health facilities without medication for a long period. 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 claimed that the delay in their payment could lead to long-term challenges. “Inasmuch as government budgets for each financial year, the revenue inflow is not consistent with the demand,” the source said. The source explained that when government set its budget for the year, it projected revenue collections, which included the SACU receipts, which were received quarterly, tax collection and other streams of income, like fines.

Demands

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 where government rendered services 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 in all instances. The source said all these services needed government to regularly disburse money towards ensuring that they were flowing without hindrance and when the government was in a tight spot, 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 government was in a tight spot. He said this was because the country was a month away from receiving its SACU receipts.
The minister was sought for comment to establish if the country was facing financial challenges, what could be the solution to this predicament and when was it anticipated to be sorted out. Rijkenberg 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 shall be a thing of the past, as the country will be getting its quarterly share of the SACU receipts next month.

Rijkenberg said: “We shall be receiving SACU and we shall be paying suppliers if all goes well in the second week of July.” He acknowledged that the amount owed to suppliers was estimated to be about E1.4 billion. The minister said the country was also expecting to receive its first investment from the Johannesburg Stock Exchange (JSE). “There have been delays in the JSE investment, but we are expecting about E400 million from it in the upcoming weeks and that will bring huge relief to the cash flow of government,” the minister said.

Rijkenberg also explained that the country had an approved ‘ceiling of E4 billion to source from the JSE, as approved by Parliament. The minister said there was nothing sinister about the outstanding payments of E1.4 billion, more especially around this period when government would be expecting SACU receipts. He said most of the outstanding payments were not more than 60 days old, which was much better than where the country was in 2017. 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.

Also, government has raised a total of E851.6 million through government bond issuance during the quarter ended March 2024. The Central Bank of Eswatini, which issues bonds on behalf of government, reported that of this total, E616.6 million was raised through public auctions and E235 million through private placements. Bonds are issued by governments and corporations when they want to raise money. By buying a bond, you are giving the issuer a loan and they agree to pay you back the face value of the loan on a specific date, and to pay you periodic interest payments along the way, usually twice a year. Both public and private auctions were undertaken through the plain vanilla bond programme, following the indefinite suspension of the suppliers bond programme at the end of the first half of the 2023/24 financial year.

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. It is worth noting that in January 2024, the country experienced a similar challenge which was sorted when the government received its E2.9 billion quarterly SACU receipts. At the time, government arrears were at E700 million. On the other hand, the International Monetary Fund (IMF) states that Eswatini’s economic prospects for 2024 are favourable, partly because of higher SACU revenues.

It states that the projected increase in government expenditure would support economic activity and external funding of major capital projects such as the Mkhondvo-Ngwavuma Dam, would boost both demand and supply.The outlook states that the wholesale and retail, construction and public administration sectors are all expected to benefit from higher public spending. Also, it states that the tourism sector was expected to continue its recovery and remittances were picking up.However, difficulties in the external and domestic environments were reported to constrain the country’s growth potential.

Report

The report stated that although real gross domestic product (GDP) growth was expected to continue to grow at 4.1 per cent in 2024, global turmoil and a slowdown in the economy of the major trading partner, South Africa, was likely to dampen economic activity. Meanwhile, Eswatini faces multiple development challenges to ensure inclusive, sustainable, and resilient economic growth. Central among these is Eswatini’s unsustainable public sector-driven growth model, which has trapped the country in a low growth and high poverty and inequality equilibrium and crowded out investments in productive sectors and private sector development. It was said that 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 have contributed to fiscal deficits, complicated fiscal management and reduced resources for service delivery and investments in job creation.