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Domestic debt jumps 9 percent

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By Taonga Sabola:

Malawi’s outstanding domestic debt stock accelerated by nine percent from K1.37 trillion to K1.5 trillion in the second quarter of 2018, figures from the Reserve Bank of Malawi (RBM) indicate.

The K1.5 billion is slightly higher than the K1.45 trillion budget for the 2018/19 financial year.

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The increase, according to RBM, was mainly on account of a rise in the stock of Treasury bills and Treasury notes.

“Treasury notes and Treasury bills continue to dominate the domestic debt portfolio at 62.3 percent and 32.8 percent, from 67.9 percent and 24.6 percent recorded in the preceding quarter, respectively.

“The increase in Treasury bills stock during the review quarter followed conversion of K105.6 billion of Ways and Means advances into Treasury bills,” RBM says in its Financial and Economic Review for the second quarter.

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It adds that the proportion of debt held by the RBM declined significantly to 38 percent in the review quarter from 61.2 percent and 56.6 percent in second quarter 2017 and first quarter 2018, respectively.

This was as a result of RBM’s offloading of Treasury notes to other market players. Zero coupon promissory notes, and advances from commercial banks were recorded at 4.4 percent and 0.38 percent.

External debt, on the other hand, decreased by 0.5 percent to $2 billion [about K1.5 trillion]. Year-on-year, the stock rose by $208.9 million (11.8 percent) from $1.9 billion recorded at the end of a similar period in 2017.

RBM says projected disbursements in the review quarter amounted to $54.2 million against a total debt service of $19.9 million, while those in the previous quarter amounted to $11.7 million against debt repayments of $8.5 million.

“The ratio of external debt to GDP [Gross Domostic Product] slightly dropped to 29.5 percent from 29.6 percent in the previous quarter. This followed the 0.5 percent reduction in the total stock of external debt.

“Debt from multilateral creditors accounted for 79 percent ($1.6 billion) of the total stock while bilateral debt constituted the remaining 21 percent ($436.9 million) as at the end of the quarter under review,” reads the review in part.

In its 2018 Article IV Consultation with Malawi, International Monetary Fund (IMF) directors noted that domestic debt rose sharply after the withdrawal of donor budget support, securitisation of arrears and bank recapitalization, raising the debt service burden and reducing space for much-needed infrastructure and social spending.

The directors stressed the importance of improving debt management and broadening the coverage of domestic debt through enhancing data on state owned enterprises.

“Directors cautioned against giving in to spending pressures in the run-up to the 2019 general elections and highlighted that increased spending efficiency will create room for more social spending and targeted infrastructure investment. Further, they emphasised the importance of prioritising large investment projects, with concessional donor financing and private sector participation.

“Directors also underscored that public financial management and procurement reforms are necessary to address governance challenges and bolster donor confidence. Over the medium term, broad-based tax reforms will also foster a more efficient, transparent, and fair tax system,” the IMF said.

Finance Minister, Goodall Gondwe, earlier this year told Parliament that Capital Hill does not harbour an appetite for domestic borrowing.

Speaking when he presented the mid-year budget, Gondwe said the assertion about the so-called appetite for domestic borrowing overlooks the fact the government’s domestic borrowing has steeply declined.

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