Business News

Debt service expenditure continues to rise—report

Despite registering a reduced fiscal deficit in the 2018/19 fiscal year, Treasury’s expenditure on debt service has continued to rise, a situation economists say is worrisome.

Business Review analysis of the Reserve Bank of Malawi (RBM) figures show that during the 2018/19 financial year, Treasury closed the year with a K189.3 billion deficit, a drop from the projected K255 billion.

However, interest payment on loans at K206.5 billion was K24.9 billion more than what was projected during the 2018/19 Mid-Year Budget Review.

The provision for interest payments on debt was reduced from the approved budget of K182.9 billion to K181.6 billion on account of lower interest bill on domestic debt during the second half of the fiscal year due to the reduction in the policy rate by 1.5 percentage points to 14.5 percent.

Treasury had also revised upward the estimated fiscal deficit from K205.5 billion to K255.95 billion or 4.8 percent of gross domestic product (GDP), which was to be financed by K214.7 billion, or four percent of GDP, domestic borrowing, with the balance financed by foreign borrowing.

Weighing in on the figures, Economics Association of Malawi (Ecama) president Chikumbutso Kalilombe observed that the country could be spending more on loan servicing than on development expenditure.

“If we continue borrowing heavily for consumption, we will find ourselves spending more on loan servicing than on development,” he said.

University of Malawi’s Chancellor College economics professor Ben Kaluwa said this paints a worsening situation for the country’s economy.

“While we are more concerned with debt sustainability, we have also to bear in mind that the obligation of a borrower is to pay back the principle plus interest.

“This is not just about debt repayment but sustainability too,” he said.

Government’s overarching objective of the 2018/19 budget was to achieve a fiscal position consistent with sustaining and entrenching macroeconomic stability.

Figures show that public debt stands at $4.3 billion (about K3.2 trillion) or 68 percent of GDP with domestic debt at $2.2 billion (about K1.6 trillion) or 34 percent of GDP and external debt is at $2.1 billion (about K1.5 trillion) or 33 percent of GDP. The figures are above the internationally recommended threshold of 20 percent of GDP for domestic debt and 30 percent of GDP for external debt.

Related Articles

Back to top button