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Public debt rise worries industry

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By William Kumwembe:

The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has reiterated that public debt is stifling the country’s economic growth strides.

In its 2019 first quarter Economic Review issued on Tuesday, the chamber says economic gains registered in the first three months of the year are threatened by increasing public debt levels.

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The first quarter saw a reduction in policy rate — a key driver of interest rates on loans — to 14.5 percent from 16 percent, a stable exchange rate at around K733 against the United States dollar and lower inflation rates which stood at 9.3 percent in March.

The quarter has also seen sustainably higher levels of gross official reserves.

“However, the gains from these favourable economic fundamentals are likely to be threatened by an ever-increasing domestic public debt which is likely to crowd out private sector investment,” reads part of the MCCCI report.

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Figures provided show that the public debt stock has been rising since the first quarter of 2018 and it reached the highest level in the fourth quarter at K3.3 trillion from K3.1 trillion the previous quarter.

On the other hand, the proportion of external debt to total debt has decreased from 49.6 percent to 47.2 percent recorded in the preceding quarter and the trend has prevailed since the first quarter of 2018.

This shows that the proportion of domestic debt has been increasing and it reached K1.7 trillion (32.3 percent of GDP) at the end of the year 2018 from K1.6 trillion registered at the end of the third quarter.

The chamber says the increase in government borrowing from the domestic market is likely to push interest rates upwards.

It says “the situation could crowd out private sector investment due to the increased cost of borrowing, a development that would stagnate private sector investment and growth and that of the economy as a whole— as the private sector is the engine for economic growth.

In addition, the rise in public domestic borrowing continues to threaten private sector development and that of the economy as a whole, as it has the potential to crowd out financial resources that could have been used for productive purposes,” MCCCI says.

It further says unplanned expenditures during the forthcoming tripartite elections period are also likely to exert more pressure on ballooning domestic public borrowing in the first quarter of 2019.

The International Monitory Fund (IMF) recently warned that the country was at risk of a debt distress if no swift action was taken to reverse the situation.

IMF Resident Representative Jack Ree, said public debt had increased rapidly since the country got a debt relief in 2006.

Finance Minister Goodall Gondwe told Parliament recently that Capital Hill did not have appetite for domestic borrowing.

Gondwe said government’s domestic borrowing has steeply declined.

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