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Public debt interest up by K124.5 billion

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Interest on government debt has increased by K124.5 billion to K645.2 billion, figures from the Treasury show.

According to figures in the mid-year budget statement Finance Minister Sosten Gwengwe presented to Parliament late last month, as at the beginning of the financial year, the government planned an interest payment of K520.7 billion.

“The increase is on account of exchange rate adjustment due to the devaluation of the Kwacha and higher interest rates,” Gwengwe said.

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In May, the Reserve Bank of Malawi devalued the local currency by 25 percent in an attempt to align the Kwacha with trends and give it its true value. But the option saw commodity prices rising further.

Within the year, the Reserve Bank of Malawi also adjusted its policy rate—the rate at which commercial banks borrow from the central bank as lender of last resort— twice to 18 percent in November. This made the cost of bank loans become more expensive.

In an interview, economist from the Malawi University of Business and Applied Sciences Betchani Tchereni said there are no shortcuts to settling the ever soaring public debt plus interests.

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He, however, commended the Ministry of Finance for embarking on the debt restructuring process.

“Going forward, we need to start negotiating for concessional loans, both domestic and foreign, and, aside from that, the government should borrow strategically and with a purpose,” he said.

Another economist Murry Siyasiya said the increase in the debt interest allocation spells doom for the country’s budget, which has had squeezed revenue streams.

Malawi’s total debt stands at K7.3 trillion, up from K6.38 trillion in March 2022.

Of the total debt, external and domestic debt account for 45 percent (K3.3 trillion) and 55 percent (K4.0 trillion) of the total debt, respectively, and as a percentage of GDP, the total debt in nominal terms stands at 64 percent.

The World Bank estimates that Malawi risks having its debt-to-gross domestic product (GDP)-ratio rising to 76.6 percent by the end of 2022.

The debt-to-GDP ratio compares a country’s sovereign debt to its total economic output for the year. It illuminates how strong a country’s economy is and the likelihood of paying off its debt.

The World Bank says Malawi remains in debt distress despite its debt situation projected to be sustainable in the near future, thanks to on-going implementation of the government’s debt restructuring strategy.

Public debt increased to 64.0 percent of GDP in 2021, up from 54.8 percent of GDP in 2020.

Financing of fiscal deficits through domestic resources has led to the accumulation of domestic debt, which increased from 21.9 percent of GDP in 2020 to 31.2 percent of GDP in 2021, according to the World Bank.

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