Govt’s new debt outpacing dismantling of arrears – BAZ

Government’s accumulation of new debt compared to the rate of dismantling its arrears owed to contractors and suppliers is still a concern because the debt pile-up is higher, says the Bankers’ Association of Zambia (BAZ).

Domestic arrears owed to contractors and suppliers stood at over K14 billion by the end of third quarter of last year, according to Ministry of Finance data.

This was after the arrears increased to K13.91 billion from K12.77 billion in the first quarter of 2018 due to a rise in arrears related to roads construction.

In an interview, BAZ chief executive officer Leonard Mwanza said while government had been making progress on dismantling the arrears, the accumulation of new debt compared to the rate of dismantling remained a concern because the debt pile-up was higher.

External debt stock as at close of the third quarter last year was US$ 9.51 billion from US $9.37 billion at end of the second quarter of 2018, while domestic debt, mainly government securities, as at end of third quarter 2018 amounted to K54.6 billion from K51.9 billion at the end of second quarter 2018.

“The biggest concern is that their accumulation of debt is surpassing the dismantling process. So, quarter-on-quarter, we get to hear that the arrears owed to local suppliers are increasing, which means even if they (government) are paying, the level at which their accumulation of debt is going is much higher than what they are able to dismantle,” Mwanza said.

“Much as they are paying, it is not matching their accumulation of new debt or new arrears. So, the problem is that, much as they are dismantling, it’s not matching with the rate at which new arrears are accumulating. So, it becomes a fiscal control issue that needs to be brought under some level of control.”

And commenting on the slow uptake by commercial banks on the moveable assets registry, Mwanza expressed optimism that financial institutions are embracing the new initiative.

The enactment of the Moveable Property (Security Interest) Act number 3 of 2016, aimed at giving lenders the assurance required to accept personal or movable property as collateral.

The Act provides more available options as admissible collateral for financial clients looking for credit facilities from the banks.

It further provided for the establishment of a collateral registry whose objective is giving lenders the assurance required to accept personal or movable property as collateral.

The Moveable Property Act is being administered by the Patents and Companies Registration Agency (PACRA), and in collaboration with the Dairy Association of Zambia (DAZ).

Banks have started piloting the use of animals as a form of collateral when lending money to Micro, Small and Medium Enterprises (MSMEs).

But its uptake by financial institutions has been slow, according to the Bank of Zambia (BoZ).

“The principle reason for establishing the Moveable Properties Registry was to broaden the range of collateral that was available to potential lenders so that more people could access credit from the providers of credit. Ultimately, yes, it would probably have an impact on the volume of credit because borrowers who previously did not have the assets to support their credit request would be able to use these assets,” BoZ deputy governor for operations Dr Bwalya Ng’andu told journalists following the Monetary Policy Rate (MPR) announcement last month.

“Unfortunately, although the Registry is up and running and is available, the uptake from financial institutions has been slow. I think the challenges are that faced are probably the nature of the assets; what to do with the particular are provided. So, in short, the Registry is up and running; the uptake is slow, I think part of the challenge we have to face is that of sensitizing more and more of its users and also encouraging the lenders themselves to become familiar with the assets that will be made available. But it’s up and running, and as time passes, it should be able to be able to improve in terms of uptake.”

However, Mwanza, a former Natsave managing director, explained that the moveable assets Registry is being embraced by lenders who only varied in terms of business models and strategies.

“So, from the information I have from PACRA in terms of usage of the collateral registry, in terms of the searches, there has been an increase from the commercial banking sector’s side. In terms of registration on the registry, there’s been some element of improvement and a lot of interest from the commercial banking side,” said Mwanza.

“However, in terms of listings for facilities that have been approved and they’re listing the collateral, there are more listings that are coming out from the micro-financial institutions compared to commercial banks. So, it is a reflection of the different business models. For a micro-finance, they might say they are willing to register a laptop; fridge or household good as part of the collateral. Banks may be more inclined to register a showroom motor vehicle, machinery or equipment.”

         

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