Private borrowers are likely to be priced out of the credit market and feel the pinch of high interest rates if government continues to borrow to service debts and dominate in the credit market, a financial analyst has said.
NBM Capital Markets Limited assistant investment analyst Paul Mojoo was responding to a questionnaire in light of a Reserve Bank of Malawi (RBM) financial and economic review for the second quarter which indicates that government is still borrowing from commercial banks.
The report indicates that domestic debt decreased by 1.9 percent and closed the second quarter of 2015 at K425.31 billion from K433.77 billion in the first quarter.
The decrease, according to the report, was largely on the account of a drop in outstanding ways and means advances by 63.5 percent from K58.40 billion in the first quarter to K21.34 billion in the quarter under review.
He said although there was a marginal decline in domestic debt, the reduction in debt did not translate in less borrowing from the private sector.
Said Mojoo: “The government increased borrowing from commercial banks from K123.9 billion in the first quarter to K131.3 billion in the second. What it did actually was to restructure the debt by reducing borrowing from the central bank and increase borrowing from the private sector.”
He observed that the development did not reduce the burden on private sector borrowers.
In contrast, treasury bills increased to K282.07 billion from K253.47 billion in the preceding quarter and other components of domestic debt remained unchanged.
According to the report, the proportion of treasury bills in the domestic debt stock rose to 66.3 percent from 58.4 percent recorded in the first quarter, while ways and means advances decreased to 5.0 percent of the domestic debt stock from 13.5 percent in the first quarter.
“Domestic debt, therefore, continued to be slanted towards short maturities as such exerting roll-over pressure on the government,” reads the report in part.
The report says most of the domestic debt was held by commercial banks at 35.28 percent, followed by the RBM at 26.96 percent, insurance companies at 19.9 percent while pension funds held 6.0 percent.
In terms of external debt, at the close of the second quarter, the stock totalled $1,896.8 million, a rise of $132.1 million from $1 764.7 million in first quarter of 2015.
According to the report, debt from multilateral creditors accounted for 76.6 percent of the total external debt in the quarter under review, up from 75.3 percent in the preceding quarter.
In absolute terms, multilateral debt increased from $1 329.7 million in the first quarter of 2015 to $1 452.7 million in the quarter under review.
Similarly, bilateral debt also increased to $444.1 million from $435 million in the first quarter of 2015.