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Rising public debt worries economists

Williams Banda

Lauryn Nyasulu

The government’s insatiable appetite for domestic borrowing has bothered some economic experts who have rated the trend as unsustainable.

The option, the experts say, is expensive and would stifle economic growth strides as private sector players are being crowded out of the debt market.

By December 2020, domestic debt stood at K1.103, up from K104.6 billion in November.

In the first half of the 2020/21 financial year, government operations have faced intense pressure, with a reported mismatch between expenditure and revenue, leading to rising public debt.

In his Mid-year Budget Statement, Finance Minister Felix Mlusu pegged budget deficit at K810.7 billion. Of the amount, about K246.3 billion is projected to come from foreign financing while the other K564.4 billion will be sourced through domestic borrowing.

In an interview Thursday, Economics Association of Malawi President Lauryn Nyasulu said the Treasury should tame its appetite for borrowing even though the country has limited avenues to finance the deficit.

She added that the Mid-year Budget Review Meeting of Parliament would have been an opportunity for Treasury to effect some adjustments on the financial plan and live within means.

“In the next budget, there is a need to adjust accordingly because currently resources are tight and it is difficult for government to raise enough revenue with the economic challenges coming from the Covid pandemic,” she said.

Economist from The Polytechnic Betchani Tcheleni concurred with Nyasulu, arguing that if the Treasury would not service the debt and continue with its appetite for domestic borrowing, the debt may reach un-sustainable levels.

Treasury Spokesperson Williams Banda admitted that debt is indeed high, adding that the current government found it in such state.

Banda said the government has, however, put in place measures to systematically manage the dent levels.

“The increase in budget was done to finance the increased expenditures due to Covid and to re-administer the MSCE exams. We do not have money yes but these were important so we had to increase deficit and borrow,” he added.

In the report titled ‘From Debt Resolution to Growth: The Road Ahead for Africa’, the AfDB also says the fiscal deficit is projected to widen to 10.2 percent in 2021, raising the debt-to-GDP ratio to 66 percent in 2021.

It says the current account deficit is forecast to narrow to 12.5 percent of GDP in 2021 as exports rebound, then tick up to 12.9 percent in 2022.

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