The Malawi Government has said is borrowing within required thresholds, but is set to limit debts as too much debt could be ‘dangerous to the country’s economy’, director of debt and aid in the Ministry of Finance and Economic Peter Simbani has said.
According to the International Monetary Fund (IMF), government overspent by as much as two percent of gross domestic product (GDP) during the second-half of the 2014/15 financial year largely due to a dramatic jump in the personal emoluments budget line.
Due to such fiscal slippages, coupled with weak revenue collection, government has been borrowing heavily.
By end June this year, public debt hit K1.25 trillion—with K829 billion being external debt and K425 billion domestic debt—more than the K930 billion 2015/16 total budget.
This current debt level is around 40 percent of the economy, which, while being slightly better than the 66 percent ratio of GDP in June 2014, remains dangerously high and unsustainable
But in an interview on Friday in Blantyre on the sidelines of Alliance Capital Limited’s 10 years celebrations, Simbani said Malawi is still within the debt limit.
However, he said government will need to heed calls to cut borrowing, as ‘too much borrowing could be dangerous’.
He said: “We are not borrowing that much, of course if you look at the debt sustainability analysis, we are still within the limits in terms of how much we are supposed to borrow as a country.
“Of course, we are going towards [the] limit, which could be a bit dangerous, but, we are still within the debts sustainability levels which was agreed with by the IMF.”
His comments come barely a few days after Minister of Finance, Economic Planning and DevelopmentG oodallGondwe also told Parliament that government is not borrowing too much.
In his reaction to Dedza East Member of Parliament (MP) Juliana Lunguzi, who had watered down government’s proposal to borrow K16 billion, Gondwe said Malawi is borrowing prudently.
Said Gondwe: “We are very far from saying we are over-borrowing. We borrow prudently, use it on things that will bring about economic growth.”
Economic experts, however, are worried. They say huge domestic debt stock is partly fuelling inflation, which is currently hovering at 24.1 percent.
They also say government is not supposed to exceed the 20 percent it is required to borrow from the central bank.
Other calls have come from the Budget and Finance Committee of Parliament who told government to reduce internal borrowing by 50 percent to prevent paying high interest rates that cripple the country’s economy.
Chairperson of the committee, Rhino Chiphiko, told journalists in Lilongwe in May this year, Malawi is failing to develop because government heavily borrows from money lending institutions.
“Government loses a lot of money in paying interest rates to both the Reserve Bank of Malawi [RBM] and other money lending institutions.
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