The government is expected to repay over K500 billion for maturing debt instruments within the second quarter of the 2023-24 financial year (July to September), figures from the Reserve Bank of Malawi (RBM) show.
According to a Financial Market Developments update from RBM, normal Treasury securities worth K259.5 billion and K141.2 billion are maturing in July and August, respectively.
In September, the Treasury would have to pay K100 billion for maturing securities.
Ironically, Malawi will be borrowing K628 billion through Treasury securities during the period under review.
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In an interview on Tuesday, Minister of Finance and Economic Affairs Sosten Gwengwe said, of the K1.3 trillion borrowing planned to cover for this year’s budget deficit, K970 billion will go towards settling old debts.
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Gwengwe added that debt and exchange rate misalignment remain two major economic challenges needing bold and decisive decisions by the government and citizens.
“During this quarter, K628 billion will be borrowed but K500 billion will be used to pay old debts. If we were not in this trap, the K500 billion would have been used productively,” Gwengwe said.
Economics lecturer from the Malawi University of Business and Applied Sciences Betchani Tchereni said the government has always dug trenches in order to fill up other trenches.
“It means the amount in debt will be larger than what would have been before the maturity and, in addition, the debt then becomes unproductive because it is not debt used on job creation, for example,” Tchereni said.
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Financial Market Dealers Association of Malawi President Leslie Fatch said with the increased interest rates, the government will have to pay more, which will put pressure on fiscal space.
“The biggest challenge with public debt is that it channels resources from the private sector. That way, the government continues to be the driver of the economy at the expense of the private sector.
“However, we all know that much of government spending is for consumption and not production, which affects the level of GDP growth as productive output is subdued,” Fatch said.
Malawi’s total public debt stood at K7.9 trillion as at December 2022, an equivalent of 69.93 percent of gross domestic product (GDP), which is pegged at K12 trillion.
Of the debt stock, K4.43 trillion, about 114 percent of this year’s national budget, was secured domestically while K3.47 trillion (an equivalent of 90 percent of the 2023-24 budget) is external debt.
The Treasury planned to have the budget, deficit to GDP ratio reduced by one percent each year, a dream which is far from being met, at least in the 2023-24 fiscal year, as the gap is seen at K1.32 trillion or 8.7 percent of GDP.
The budget deficit has grown by about 30 percent from K1.01 trillion (or 8 percent of GDP) in the 2022-23 budget.
It will be financed through foreign borrowing amounting to K288.78 billion and domestic borrowing amounting to K1.19 trillion.
