Market analyst Cosmas Chigwe says the easing of domestic debt in the second quarter (April to June 2021) is not normal and should be treated with caution.
Chigwe’s sentiments follow published CDH Investment Bank figures showing that government domestic borrowing decreased in the review period to K202.25 billion relative to the first quarter (January to March) 2021 at K438.50 billion and the second quarter of 2020 at K308.86 billion.
He said: “Fiscal expenditure is lower in the second quarter of the year and borrowing is also consequently less. And the government usually has preapproved levels of domestic borrowing for the fiscal year.
“Much of the borrowing is concentrated in the first three quarters leaving little room to borrow in the final quarter. It, therefore, does not signify any actual reduction in government borrowings. Also, because government has been borrowing long-term, the maturity amounts keep geting smaller in the short-term and they dont have reason to borrow a lot now.”
According to published Reserve Bank of Malawi (RBM) figures, Treasury raised K30.58 billion in auctions of Treasury Bills (TB) during the period under review, representing a decrease of 83.96 percent when compared to K190.67 billion raised in the previous quarter, and a decrease of 57.3 percent when compared to K71.63 billion raised in the same period last year.
Total applications for TBs for the second quarter amounted to K31.91 billion, representing a rejection rate of 4.16 percent which is higher than the rejection rate of 3.57 percent in the previous quarter but lower than the rejection rate of 33.31 percent during the same period last year.
Treasury also raised K171.67 billion in auctions of Treasury Notes (TNs), compared to K247.83 billion in the last quarter and K261.09 billion in the same quarter last year.
Economist Bond Mtekeza said while it is good for Treasury to decelerate its debt acquisition, it’s best to watch the trend.
“Will the downward trend be sustained? I think that’s very important to observe. Of course we have seen Malawi Revenue Authority beat its targets by a huge margin lately, let us hope that is sustained as well,” he said.
However, CDH Investment Bank said it expects yields of government securities to remain elevated in the short-term as far as government domestic borrowing needs remain high and RBM continues to pursue a cautious monetary policy in the face of high risks associated with Covid-19.