Advertisement
Business

July-September domestic debt to hit K403 billion

Advertisement

The government is expected to borrow K403 billion domestically by end of the first three months of the 2020-21 financial year.

This is about 71 percent of the K565.4 billion the government projected to borrow domestically during the nine-month long financial year.

According to an action issuance calendar for July to September this year released by the Reserve Bank of Malawi (RBM), Treasury is expected to borrow K191 billion through Treasury bills and K211 billion through Treasury notes.

Advertisement

The financial plan has yet another yearning a fiscal deficit of K811.7 billion, representing 8.8 percent of gross domestic Product (GDP).

Of the amount, K565.4 billion, or 6.1 percent of GDP, is projected to be funded through domestic borrowing.

When tabling the budget, Finance Minister Felix Mlusu said the deficit is on account of subdued revenue performance, expenses in response to the Covid pandemic and the significantly high proportion of mandatory expenses, among other factors.

Advertisement

Traditionally, the government borrows for consumption, except in rare instances, where the funds are meant for long term development projects.

Recently, for instance, the Treasury issued a K20 billion long-term bond-as part of the K1 trillion development bond, which was auctioned on August 17 2021.

Commentators have been pushing the government to tame its insatiable appetite for domestic borrowing, describing it as costly and unsustainable in the long run.

They say rising public debt remains a major concern as it continues crowding out the private sector and pushing an obligation to service the loan plus interest to future generations.

However, in the past years, almost all national budgets have been faced with myriad challenges including weak fiscal environment, leading to wide deficit, largely characterised by expenditure overruns and revenue shortfalls.

In an interview Monday, Heritage Partners Managing Consultant Cosmas Chigwe said high borrowing would be tamed in the country if expenditures were aligned to available resources.

“If we keep borrowing as a solution to short term problems, in the long term the country will get poorer because we will have to pay a lot in interests and, by the end of the day, it does not mean solving any problem because we are just postponing the problem,” he said.

In its recent 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.

Advertisement
Tags
Show More
Advertisement

Related Articles

Back to top button
Close
Close

Adblock Detected

Please consider supporting us by disabling your ad blocker