The Reserve Bank of Malawi (RBM)’s recent decision to raise the policy rate—the rate which commercial banks use when borrowing from the central bank as lender of last resort—continue to pile pressure as it means an elevation on the domestic public debt interest.
According to a May Monthly Economic Review from the central bank, the average monthly all-type Treasury Bill yield rose to 17.66 percent in the month, from 16.3 percent registered in April 2023.
This means if the government settles the K4.43 it owed domestic lenders by December last year, it will cough K45 billion more due to the rise in interest rate.
Minister of Finance Sosten Gwengwe said the treasury was aware of the possible impact of the policy rate adjustment to the country’s debt portfolio.
“Adjusting policy rate is always the last resort. It affects the government’s fiscus,” Gwengwe said.
Economist from Malawi University of Business and Applied Sciences Betchani Tchereni said the situation could lead to continued borrowing by the government.
“We need to have some budget cuts which can help us to save some resources and some of these include cuts on travels and some bills that the country can live without,” Tchereni said.
Financial Market Dealers Association of Malawi President Leslie Fatch said the raise in policy rate meant a rise in cost of borrowing.
Malawi continues to grapple with rising public debt.
Among other interventions, the Ministry of Finance has been working towards restructuring the country’s debt through negotiations with creditors.
As at end December 2022, total public debt reached K7.90 trillion or 69.93 percent of GDP out of which K4.43 trillion is domestic debt while K3.47 trillion is external debt.
This is compared to K6.38 trillion as at March 2022, representing an increase of 23.8 percent.
