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The debt dilemma

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Investment management firm, Alliance Capital Limited has expressed worry over rising public debt warning of serious implications on poverty levels if not controlled. The firm has said the situation is a reflection of further deterioration of the economy and public finances.

Recent figures from the Reserve Bank of Malawi (RBM) points to a 5.1 percent rise in public debt between the third and fourth quarters of 2017.

The debt rose during the fourth quarter of 2017 to K2.470 trillion from K2.352 trillion recorded in the third quarter.

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External debt rose by K47.1 billion, while domestic debt stock increased by 7.9 percent to K984.7 billion at the end of the quarter.

In a published statement, Alliance Capital Limited said the mounting debt puts the country at risk of debt distress, which may have serious implications on poverty levels.

“…This would force a situation, where more resources would have to be directed towards debt servicing as opposed to areas that would advance economic development,” the firm says.

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Alliance Capital said that the mounting domestic debt is caused by the financial demands placed on government guarantees in order to stay in business.

Alliance Capital further said Malawi is going into a period, where economic slowdown has been projected which, when combined with a rising debt would imply the government being in a fix.

“This is because such a combination means a significant increase in government revenue is required.

“In this instance, for the government to fund its obligations, it would require that more debt be taken out, whose servicing cost would mean that the available revenue for spending on budget items is in turn squeezed, thus mounting greater pressure on the government budget,” the statement says.

In a recent interview, Malawi Confederation of Chambers of Commerce and Industry MCCCI) Chief Executive Officer, Chancellor Kaferapanjira, rated the trend as unsustainable for Malawi’s economy.

He said the speed at which the public debt is rising, will affect economic growth.

IMF Resident Representative to Malawi, Jack Ree, said public debt has increased rapidly since Malawi got debt relief in 2006.

“A country cannot keep on borrowing to consume more than what it can afford. It does not work,” he said.

But Minister of Finance Economic Planning and Development, Goodall Gondwe, told Parliament, when presenting the Mid-term Budget statement, that Capital Hill does not have an appetite for domestic borrowing.

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