Malawi Stock Exchange-listed Standard Bank has said some policy adjustments made in the 2022-23 National Budget will help free resources which the government would have borrowed from the banking industry.
Standard Bank Chief Executive Phillip Madinga was reacting to the budget statement presented to Parliament by Finance Minister Sosten Gwengwe last week.
Among other things, the budget aspires to achieve fiscal consolidation, strengthen public debt management, ensure fiscal discipline and keep Malawi on track towards achieving the Malawi 2063 vision.
The budget hinges on reducing public debt stock, seen at K5.5 trillion as at mid-2021.
The budget would be implemented in an environment characterised by a weak fiscal space, leading to yet another yawning deficit of K884.04 billion.
But Gwengwe said the government intended to stabilise the debt creation processes and embark on a downward debt trajectory in subsequent budgets.
But according to Madinga, the bank expects lowering of the public debt to increase funds available to lend to the private sector and over time it may reduce the cost of funds, though that may take material reduction in domestic borrowing.
“Where the market fully dictates prices, level of interest rates should reflect the status of determinants of interest rates.
“As much as the economic goals we have set around infrastructure development, food security and others would be best delivered in a low interest rate environment, it is detrimental to force the market to ‘give’ low interest rates whilst the determinants are off track,” Madinga said.
In the next 12 months, the government intends to borrow about K653.98 billion domestically and K230.07 billion from foreign sources.
Commenting on the three areas of wealth creation, job creation and food security, on which the budget is aligned, Madinga said the bank sees an opportunity for the country to diversify export proceeds and bolster the foreign exchange reserves position.
“The budget recognises foreign exchange supply constraints that are affecting the country; improving that is key to getting to the desired outcome. It intends to encourage import substitution partly through establishment of special economic zones,” Madinga said.