Former minister speaks on K1tn development bond
Former minister of Finance Joseph Mwanamvekha says Treasury will not be able to raise K1 trillion from its development bond scheduled to be floated on the financial market soon.
In an interview on Monday soon after reacting to Mlusus’ 2021/22 Budget Statement, the former minister, who is Democratic Progressive Party (DPP) party spokseperson on finance in Parliament, argued that his doubts stem from his experience over the years on the financial market while working with the Reserve Bank of Malawi, commercial banks and as Secretary to the Treasury.
Mwanamvekha said currently, the investment climate is uncertain owing to the Covid-19 pandemic the unstable exchange rate and falling macroeconomic fundamentals which makes investors to adopt a wait and see stance.
He said: “From my experience in this market given the available liquidity, the minister cannot achieve even half of that K1 trillion amount, it’s impossible.
“My serious worry is that the minister has attached the K1 trillion bond to specific projects. What it means is that if he fails to raise the money, those projects will also fail. Trust me, he will not raise that money, it’s impossible.”
Mlusu said in his K1.99 trillion 2021/22 National Budget Statement that Treasury is expected to raise K1 trillion from the 15-year development bond on the local market over five years to finance some of the government’s strategic and flagship projects.
He said where possible, other financing models for these projects will be considered such as public private partnership arrangements and soliciting foreign or local direct financing or placements, where government will receive a complete rnkey solution from a project promoter.
The bond is part of government’s quest to improve its medium-term debt management strategy.
In an interview, Centre for Research and Consultancy executive director Milward Tobias said government should be applauded for the effort and hoped government will massively market the bond so that the objective is achieved.
He said: “What would be a mistake is not to try at all because there is Covid-19. Borrowing through bond is cost-effective because it is at low interest compared to short-term borrowing instruments like treasury bills.
“The debt level, especially domestic debt, is worrisome and we are all paying taxes to repay debt that failed to develop the economy. The bond may cushion a bit through its low interest nature.”
Over the years, despite Treasury facilitating the growth of the debt market by issuing government securities with a wider maturity range from 91 days to 10 years, the response from the public has been lukewarm.
