Finance Ministry May Start Paying Contractors With Loans Repaid By The Government

The outstanding payments to contractors and companies with ministries and government agencies may reach KD 5 billion by the end of 2021, Al-Rai reported.

In this regard, The daily learned from informed sources that the Ministry of Finance have recently opened a discussion about the possibility of paying contractors’ bills with loans repaid by the government.

The proposal recommended by an official is to allow contractors to borrow on their government payments so that the contractor can agree with a bank to finance his payments due from government agencies, scheduled on specific dates, by lending him the amounts of his advance payments, in exchange for the bank obtaining a commitment bond “IOU” from the state.

The internationally applicable “IOU” deed is an abbreviation of “I owe you”, meaning “I owe you” in Arabic, and its use dates back to the eighteenth century.

Commitments

Simply and far from any complexity, when contractors contract with government agencies, whether in the form of tenders, direct contracts, or any formulas that entail financial obligations on the state for contractors, they are obligated to carry out the work stipulated in the contract, in return for payments that are agreed to be disbursed, whether Monthly, quarterly or semi-annually.

Recently, it was noted that contractors’ complaints about the delay in disbursing their dues have increased, to the extent that payments have accumulated on government agencies estimated at about 4 billion dinars in 18 months.

In order to get out of this financial impasse, a proposal has emerged that calls for the ministry of Finance to agree to convert the contractors’ owed payments into something like a debt bond, so that the contractor has the right to borrow his due amounts ahead of time, in the form of credit financing provided by the bank to the contractor.

Interest margin

In return, the contractor wishing to borrow liquidity in advance will pay the accrued interest, the margin of which will be agreed upon with the financing bank, without the state incurring any additional obligations for the value of the agreed-upon payment.

If we assume that the value of the payment owed by a government agency to a contractor next December is KD 100 million and the “IOU” is activated, this contractor can demand the Ministry of Finance with a commitment bond documenting its due date and entitlement to these amounts, and directing it to any bank that deals with it.

The sources pointed out that those who hold this view believe that the state’s commitment bond is an ideal solution to get out of the liquidity crisis, which forced the Ministry of Finance in the recent period to direct the majority of its revenues to cover salaries and the like as a priority over any other exchange.

 

SOURCE   :   TIMES KUWAIT

Comments Post Comment

Leave a Comment

Submit