Hidden Obligations

The Malta Independent

Hidden obligations

Not only Government accounting is still on a cash basis without the discipline of accruals and provisions, but` the Government also runs a hidden account from where certain payments are funded without passing through the parliamentary checks and controls of the Consolidated Account.

Technically this account is known as the Treasury Clearance Fund and is intended to fund short term loans which are expected to be repaid. These` are therefore` kept separate from the Consolidated Account where payments are either current and therefore expensed in a definite manner, or capital which would at best be returned over a long term horizon, if at all.

The Auditor General report covering the Public Accounts for 1999 points out that some payments funded from the Treasury Clearance Fund have been outstanding for an excessive long time, rendering doubtful their eventual recovery. Where recovery seems improbable the funds will have to be provided for from the Consolidated Fund entailing additional expenditure to the Government to reflect an investment which has already gone sour.

Nearly Lm51 million are due to the Treasury Clearance Fund from Malta Drydocks and Malta Shipbuilding. Hope springs eternal but classifying these loans as capable of being repaid in the short term and avoiding the need to provide for them from the Consolidated Account seems as improbable as the 30th day of February.

Other amounts are less substantial but nonetheless disturbing.` Lm141,500 advanced to government delegations travelling abroad prior to 1993 are still unaccounted for and suspensed in the Treasury clearance Fund.` Lm531,583 advanced in October 1995 for funding the Mediterranean Crans-Montana` Forum Conference` remains similarly` in suspense in the Treasury Clearance Fund. Is it not obvious that the time is overdue` for proper account for this Funding to be given to parliament through the Consolidated Fund`

The Auditor General`s report also gives details of the guarantees and letters of comfort issued by the government in respect of borrowing obligations of government controlled companies. These borrowings do not form part` of the national debt computation which is already worryingly high on its own,` having increased from 28% of the GDP in 1992 to over 60% currently.

Guarantees and letters of comfort are meant to be contingent obligations and are not expected to result into real obligations which will have to be funded from the Consolidated Fund. However some items are clearly covering non- recoverable loans and sooner or later the Consolidated Fund will have to face reality.`

How do these sound to you` Lm 51,626,095 guarantees for loans given to Malta Drydocks.` Lm27,665,949 for loans given to Water Services Corporation.` Lm22,314,836 for loans to Gozo Ferries Co. Ltd. Lm9,561,017 for loans to Malta Gantry Manufacturing Ltd. Lm7,620,935 for loans to Malta Shipbuilding.` Lm 3,977,720 for loans to Malta Win Cargo and Lm3,064,521 for loans to Malta Counter Trade..

These on their own amount to Lm126 million loans which are clearly unrecoverable. The debtors involved enjoying government guarantees to their credit are either defunct or are being given yearly subsidies from the Consolidated Fund to survive.

And this does not include over Lm100 million guaranteed for Freeport that is also still demanding yearly subsidies from government and other doubtful amounts due .` Malta Government Loans` owes Lm21.4 million and there are` Lm14.7 millions loans to METCO/ Malta Government Investments. These borrowers` are probably fronting for the final user of these loans and consequently` it is difficult to assess recoverability.

As you can see these amount as not exactly petty cash. It is high time for the public to be given a full account of these hidden liabilities and for serious financial controls to be introduced to stop this irreverent practice of using the Treasury Clearance Fund to avoid the discipline of the Consolidated Fund accounting.