Ecama warns on growing public debt

The Economics Association of Malawi (Ecama) says Malawi risk facing problems in servicing its debt in the face of rising public debt.

Ecama president Chikumbutso Kalilombe said with the public debt standing at K2.9 trillion, which is above the limit of gross domestic product (GDP) ratio of 50 percent, the rising debt has the potential to cause macroeconomic imbalances.

“At the current public debt levels, as a country we are above the limit of debt to GDP ratio of 50 percent. This means that as a country we have reached unsustainable levels.

“This outturn also implies that as a country we may have problems in serving our debt since debt is on average growing faster than the country’s GDP. This has the potential of causing macroeconomic imbalances,” said Kalilombe.

Reserve Bank of Malawi (RBM) figures indicate that public debt stock during the first quarter of 2018 stood at K2 900.3 billion, representing a 4.1 percent increase from a 2017 fourth quarter position of K2 786.6 billion.

Public external debt accounted for 52.7 percent of the public debt stock, from 53.4 recorded in the previous quarter and 51.5 percent recorded in the corresponding quarter of 2017.

Outstanding domestic debt stock in the first quarter of 2018 stood at K1 371.1 billion, representing a 5.7 percent increase from a domestic debt stock of K1 297.6 billion as recorded by the end of the preceding quarter.

On an annual basis, domestic debt has risen by 15.7 percent from its 2017 first quarter position.

In April, the World Bank attributed Malawi’s rising debt to high fiscal deficits that force government to borrow heavily domestically and externally.

In the 10  years to 2017, Malawi has spent K123 billion on debt service—cash that is required to cover the repayment of interest and principal on a debt for a particular period—out of which K52 billion was interest payments, a situation analysts say may choke the economy at one point.

Recently, International Monetary Fund (IMF) resident representative Jack Ree said while the rising public debt was not too surprising given that primary fiscal balance deficit performance in the 2017/18 financial year, fiscal authorities should tread carefully on the recent trend of a shift of debt composition toward domestic debt.

He said there was need for authorities to consistently implement the fiscal adjustment programmes for a gradual but significant reduction of debt ratio in the years to come.