The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has expressed worry over the growing levels of public debt in the country.
MCCCI Chief Executive Officer, Chancellor Kaferapanjira, was reacting to the recent rise in public debt levels by 5.1 percent between the third and fourth quarters of 2017.
Latest figures from the Reserve Bank of Malawi (RBM) show that Malawi’s public debt rose during the fourth quarter of 2017 to hit K 2.470 trillion from K 2.352 trillion recorded in the third quarter.
External debt rose by K47.1 billion or 3.3 percent to K1, 486.2 billion while domestic debt stock increased by 7.9 percent to K984.7 billion at the end of the quarter.
Kaferapanjira rated the trends as unsustainable for the Malawi economy.
He said the speed at which the public debt is rising will affect economic growth.
“Our worry, broadly, is that the borrowing is going to reduce economic growth. What we find even more worrying is that the borrowing is for purposes of consumption,” said Kaferapanjira.
He said the mo r e government borrows, the higher the perceived financial risk coupled with a possibility to crowd out the private sector investment.
The industry chief said the growing appetite for borrowing could drive interest rates up in the short to medium term if not checked.
“One of the impacts on the private sector is that one sector [the financial sector] makes a bit of money, but the productive sector has to pay for that because the perceived risk is actually passed on to those who borrow for production and then the interest rates goes up,” he said.
The International Monitory Fund (IMF) recently warned that the country is at risk of a debt distress if no swift action is taken to reverse the situation.
IMF Resident Representative to Malawi, Jack Ree, said public debt has increased rapidly since the country got a debt relief in 2006.
“A country cannot keep on borrowing money to consume more than what it can afford. It does not work,” said Ree.
Last month, Finance Minister, Goodall Gondwe, told Parliament that Capital Hill does not have an appetite for domestic borrowing.
Gondwe said the assertion about the appetite for domestic borrowing overlooks the fact the government’s domestic borrowing has steeply declined.