Unpaid local debt owed by the government to contractors and service providers is a problem that has a major and rippling effect on economic stability and growth.
Small and medium-sized enterprises (SMEs) choke on debts for the services they provide, some of them up to four years.
The company’s growth has been held back by these unpaid obligations, and businesses are responding to – and retreating from – this economic climate.
The road construction sector is an example: hundreds of roads have been completed, handed over and used by the public, and the contractors who dared to work on the infrastructure industry are still not paid by the state and national governments.
Now the state started a program to issue infrastructure bonds, but it does not remember that the contract has not been paid. Can the government say that contractors building roads are useless?
In certain cases, the contractor has thought to take back the road he built and use it for himself! In addition, when the contractors remain without funds but their debts continue to increase, what is the essence of the government’s message to them?
But it’s not just about building roads. Suppliers of hospital equipment, school supplies and all kinds of goods and services suffer from the same problem.
At the central and district government levels, there is a growing sense that the administration simply does not honor contractual commitments and funds are siphoned off by existing agencies to pay for services provided and supplies delivered.
SMEs, which do not have large buffers to absorb longer payment terms, suffer greatly.
These companies are under financial pressure when they have to meet payments, such as salaries, rent payments, loan payments and more. Payroll is one of the most important expenses for a company of any size, and it’s not easy to end a security service contract because you need to cut costs.
This also affects the credit of these companies, as banks and other lenders worry that they (SMEs) may not be paid by the government.
A squeeze on credit reduces the expansionary potential of SMEs, and this slowdown through solvency problems has viral qualities: money owed to the country makes banks less likely to lend, which pushes the fire of economic depression.
The point of using infrastructure bonds is that they must finance large-scale public projects that will finance the entire network of contractors and suppliers that will provide essential materials and services for the project. When part of the project’s funds fall into the wrong hands, the long-term productive value becomes non-existent.
In summary, the delay in the payment of local debts by local governments is a great obstacle to the health of the economy and the sustainability of growth, because it can affect several domains such as the growth of SMEs, the improvement of public services and development. a stronger economic system.
For contractors, this type of misdirection of bond proceeds can leave the company that has paid the payment to finance other cash needs that will go bankrupt.
With the possibility that the government is mishandling the money and it is doubtful that they are using the funds in the best way, this could reduce the involvement and investment of local and international contractors in future infrastructure development.
The health and education sectors are no exception. Providers of hospital equipment and school materials face huge financial problems due to long payment delays, which not only impacts on people but on the quality of services that will be available to the public.
Hospitals may not get essential medical equipment and small clinics face poor conditions due to late payments.
It is up to the state to take the lead; if honoring the contract, suppliers will be encouraged to receive payment from the district government to provide goods, services and financing.
Generally, county governments must pay for local works and services contracted from them, so they don’t have to wait several years to get paid. Money can build and money can generate, in the sense that it can be used to make more money.
However, this pattern of mismanagement can only be avoided if we move towards more transparent and dynamic financial and accounting practices.
The economy cannot grow – let alone sustainably – if those who pay for these services do not, or cannot, pay. Businesses involved in contracting have suffered as suppliers, subcontractors and others have not been paid, affecting employment levels, access to credit and, most importantly, economic confidence. Governments must pay if the economy is to get the foundation it needs to grow.
