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Home Business Business News

Economy under siege

by Grace Phiri
23/03/2019
in Business News, Front Page
3 min read
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Economic commentators say the rising fiscal deficits and debt threaten the current economic gains, a situation which could rob citizens of access to quality social services in the near future.

Reserve Bank of Malawi (RBM) figures show that as at December 2018, the stock of central government debt stood at K3.3 trillion with external debt accounting for 47.2 percent of the debt stock while domestic debt constituted the remaining proportion of the total debt stock.

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On the other hand, the budget’s downward revision by K25 billion as well as downward revision of grants and revenues from K1.2 trillion to K1.1 trillion against expenditure means that Treasury has to work with a deficit of K255 billion.

In the circumstances, Finance, Economic Planning and Development Minister Goodall Gondwe last week revised upwards domestic borrowing from K164.2 billion to K214.7 billion.

In a written response to a questionnaire on Tuesday, economist Lucky Mfungwe said because the resources are being used for consumption purposes, eventually, there will be no meaningful investments made out of the rising domestic debt.

“If resources were being invested in productive sectors such as tourism, it could have been a different story. But in this context, it has a negative effect on the economy because the rise in domestic debt will result in crowding out resources that were meant for productive sectors to generate forex for the country to service these toxic loans. This will further the rob citizens of the quality of social services we are supposed to be accessing.

“With dominance of government borrowing, there will be less financial capital for private investments. The government soaks up financial capital leaving the private sector with less physical capital due to scarcity of liquidity,” he said

Economist Gilbert Kachamba observed that revising domestic borrowing, as a country, will create unnecessary pressure to the economy.

“Domestic borrowing will not help us much to solve of deficit problems. But what I can recommend is that we intensify other ways of collecting revenue. Our current system is leaving a lot of loopholes and others are sneaking out. If we collect more revenue, we can eve borrowing locally. 

“Looking at the bigger picture of our debt management, it seems we are not doing fine, our appetite for borrowing is getting beyond control because this debt this might affect our macro-economic picture in future,” he said.

Late last year, Gondwe hinted that the 2018/19 financial year deficit could worsen if the World Bank failed to commit its K60 billion budget support.

Parliament’s Budget and Finance Committee chairperson Rhino Chiphiko earlier faulted Treasury for its ambitious assumptions, which he said has in many cases not materialised.

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