Reserve Bank of Malawi (RBM) Governor Charles Chuka has warned that continued over borrowing and general lack of fiscal discipline is hurting the country’s efforts to curb inflation and reduce interest rates.
“Government’s continued commitment to restoring fiscal prudence and efficiency in expenditure is key to macroeconomic stability and continuation of the IMF [International Monetary Fund] Extended Credit Facility. Macroeconomic stability is dictated by fiscal prudence,” said Chuka when appeared before the Parliament’s Budget and Finance Committee last week.
He said without fiscal discipline, it is impossible to maintain simultaneously low inflation, low interest rates and adequate foreign reserves.
Chuka said government has to overcome the challenge of failure to observe statutory limits on spending which he said has continued causing over-borrowing.
He cited the low export base as another challenge economic planners and the central bank are grappling with, saying this has created seasonality in foreign currency availability.
“The country has continued to rely on one export product which has resulted in high seasonality in forex inflows and, hence the exchange rate fluctuations which feed strongly into the seasonal pattern of inflation,” said Chuka.
Finance, Economic Planning and Development Minister Goodall Gondwe recently decried a huge domestic debt overhang of K340 billion and arrears of K173 billion.
“The problem was that the budget we passed in June last year stipulated that government was not going to borrow, but it has not been the case,” he told Parliament in June.