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‘Domestic debt surge worrisome’

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NGWENYA—We need to be innovative

Industry captains have lamented that accumulation of domestic public debt continues posing greater threat to the country’s economy, faulting the government for what they call untamed appetite for borrowing.

If not addressed, this, they say could have huge repercussions on economic growth strides as it would stagnate private sector investment.

This comes as public debt stock surged from K3.4 trillion recorded in December 2019 to K4.1 trillion as at June 2020, 53 percent of which is domestic debt.

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The K4.1 trillion debt stock represents 59 percent of the nominal Gross Domestic Product (GDP).

Reserve Bank of Malawi (RBM) figures of the June Monthly Economic Review indicate that net credit to government increased to K639.2 billion while private sector had K566.0 billion.

The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) and the Bankers Association of Malawi (Bam) have since urged the Treasury to consider devising policies that would help in addressing the challenge.

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MCCCI Director of Business Environment and Policy Advocacy, Madalitso Kazembe, said if goes unchecked, domestic borrowing would stifle the private sector growth.

Kazembe said the government’s appetite for borrowing domestically has been clouding out potential private sector investors due to among other factors, increased cost of borrowing.

“Government borrowing in itself is not bad but it needs to be controlled and should be strategic. Such funds need to be directed towards areas that can stimulate growth and create wealth rather than for consumption,” Kazembe said.

Speaking on the sidelines of the Export Development Fund launch last week, Bam president, Kwanele Ngwenya, said commercial banks would also want their excess liquidity to be sitting in the private sector for growth but government instruments seem safe.

“The manufacturing sector is not accessing a lot of funding from the banking industry. So, we need to be innovative and assist the sector so that we revive the industry,” Ngwenya said.

In a recent interview, Treasury spokesperson, Williams Banda, said the government is already implementing systematic strategies in managing the debt levels.

“In line with the debt sustainability strategy, we are opting for concessionary and foreign denominated loans, which are cheaper. We are working tireless to avoid domestic borrowing and when need rises; we would rather go for foreign loans which are cheaper and at lower rates,” Banda said.

In its latest Malawi Economic Monitor titled From Crisis Response to a Strong Recovery issued last month, the World Bank warned that Malawi remains at a high overall risk of debt distress, which could further undermine fiscal sustainability and frustrate strides towards economic recovery.

The Britton Woods institution attributes this to the increased incurrence of high-cost domestic debt.

However, it says the risk associated with external debt is moderate, with some space to absorb shocks.

Malawi’s debt ratio to GDP has more than doubled since 2011.

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