A promissory note is a financial instrument that contains a written promise by the issuer to pay the payee a definite sum of money, either on demand or at a specified future date.
Some three years ago, the government resorted to issuance of promissory notes to suppliers in a desperate attempt to reduce pressure on the fiscus as debts kept pilling.
But in a statement Thursday, Secretary to Treasury Ben Botolo said government has, with immediate effect, stopped issuance of the zero coupon promissory notes to creditors and claimants.
Botolo said, going forward, all arrears or claims will be processed through the national budget.
“The general public is further advised that all zero coupon promissory notes issued to date would be duly honoured by government as and when they fall due,” Botolo said.
Malawi Confederation of Chambers of Commerce and Industry (MCCCI) Chief Executive Officer, Chancellor Kaferapanjira, Thursday said issuance of zero coupon bonds was not meant to be permanent but was supposed to address a specific challenge which saw the arrears at K155 billion as at June 30 2014.
“We have heard stories of fake claims from a number of politically connected individuals. The issuance was thus abused because it outlived its life. Primarily, government should be settling its liabilities the year the liabilities are incurred.
“Continuing to issue zero coupon promissory notes gives an incentive to government to continue accumulating arrears. Government should spend within the budget, not accumulate arrears,” Kaferapanjira said.
As at February this year, the private sector arrears stood at K78 billion.
Chancellor College economics professor, Ben Kalua, yesterday hailed government’s decision to phase out promissory note issuance, saying it would help instill fiscal discipline.
Kalua said issuance of promissory notes allowed government to spend money it did not have, thereby fuelling fiscal indiscipline.
Budget and Finance Committee of Parliament Chairperson, Rhino Chiphiko, recently described promissory notes as a debt trap.
Chiphiko told Parliament that it has been known that the government has not paid any money to any of the contractors carrying out development projects but is issuing promissory notes which, over time, are accumulating huge interests.
“What is now happening which is very bad, is that these construction companies are getting money out of the old promissory notes, financing the projects and then government is issuing new promissory notes so we are in a vicious cycle of debt which we will never get out of,” Chiphiko said.
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