Business

MCCCI sees mounting domestic borrowing

David Sado

The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has said it expects in domestic borrowing fueled by unexpected expenditures on Coronavirus fight as well as the fresh elections slated for July 2.

In its first Quarter Economic Report released on Monday MCCCI says the development is likely going to worsen the fiscal deficit.

The 2019/20 budget was already under pressure in the first half of the fiscal year as domestic revenue performance hovered below the expected margins.

According to MCCCI, the situation is worrisome as the value of Malawi’s public domestic debt stock has surpassed that of external debt a development which is increasing the risk of public debt distress.

The total public debt stood at 62.8 percent of GDP in June 2019, its highest level over the past decade. The stock of external debt has increased only gradually since the 2012 devaluation, going up from 26.5 percent to 30.2 percent from 2012 to 2019.

On the other hand, domestic debt increased from 13.8 percent of GDP to 32.6 percent of GDP over the same period due to repeatedly higher than expected fiscal deficits. The recent spike in domestic debt poses a significant risk to debt sustainability, given the high debt servicing costs.

Under the current International Monetary Fund (IMF) Extended Credit facility (ECF) macroeconomic program, the Government has capped borrowing from the Reserve Bank of Malawi at zero and instead additional financing needs are being met through borrowing from the commercial banks and non-bank sector.

Consequently, at the end of the quarter in 2019, net credit to government from RBM declined to K 683.3 billion from K764.5 billion in the preceding quarter while commercial banks’ net credit to central government rose by K58.9 billion to K462.4 billion during the same period.

“Increased government domestic borrowing negatively affects the economy as it crowds out financial resources that could be used by the private sector for investment purposes,” MCCCI says.

Treasury Spokesperson, Davis Sado, Tuesday said it is common knowledge that in the wake of the Covid-19 response plan, Government will require a lot of resources to ably fight and mitigate the impact of the Coranavirus.

Sado, however, said the business community need not to panic too much.

“Government will continue following its issuance calendar which is out and will continue being cautious and conservative on borrowing unless otherwise in an attempt to manage the economy in this tough global economic moments.

“While the government is doing it’s best within it’s means to identify resources for this noble cause, as pleaded by the Country’s Head of State during the National Address on the Covid-19 we are hopeful that our cooperating partners will join government in this fight through support in various forms,” Sado said.

Speaking when he presented the revised K1.84 trillion budget statement in February, Finance Minister, Joseph Mwanamvekha, said the revised budget was expected to see the fiscal deficit rising from 1.9 percent to 3.7 percent of GDP which, he said, was lower than what was recorded in 2018/2019 at 5.1 percent.

He said the deficit will be financed by domestic borrowing of K203.3 billion, representing 2.4 percent of GDP and the balance will be financed by foreign borrowing.

faith leaders
Tags
Show More

Related Articles

Back to top button
Close
Close

Adblock Detected

Please consider supporting us by disabling your ad blocker