The Ministry of Finance says it has made progress with plans to issue a 15-year development bond to finance some strategic and flagship projects for the country’s development needs.
The bond is meant to provide an investment outlet for surplus resources available in the economy and also finance the capital expenditure of various developmental projects.
Minister of Finance Felix Mlusu last week said that in conjunction with the Ministry of Economic Planning and Development, they have completed the selection of prioritised flagship projects expected to be financed through the issuance of this long-term paper.
But 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.
For instance, the 23 government Treasury Notes with nominal value of K916.58 billion listed on the Malawi Stock Exchange (MSE) to raise capital and refinance debt are yet to register any trading activity.
But Mlusu, without indicating the projects earmarked to be financed by the bond, said government also has other financing models for these projects, including public private partnerships, foreign direct investment or local direct financing where government will expect to receive a turnkey solution from a project promoter.
He said Ministry of Finance will soon release a prospectus on all prioritised flagship projects, inviting the participation of the private sector in the national development agenda through infrastructure financing and development.
The bond, which is part of government’s continuous quest to improve its medium-term debt management strategy by ensuring that it is based on a sound analysis of cost and risk, comes at a time public debt in the country has been on the rise.
Currently, Malawi’s total public debt stands at K4.1 trillion, the majority of which, at 57.3 percent, is domestic debt.
Projections by the International Monetary Fund indicate that Malawi’s debt stock will likely hit 78 percent of the country’s total wealth as measured by nominal gross domestic product in 2021.
The projected proportion of the country’s debt stock to the total national income would probably be the highest ratio, 14 years after Malawi had about $2.6 billion (about K2 trillion) or 90 percent of its external debt written off under the Heavily Indebted Poor Countries (Hipc) Initiative in 2006.
In an interview, Alliance Capital Limited reserch manager Bond Mtembezeka said the issuance of a development bond will provide government with quick wins, including raising funds specifically for development projects, to reorganising and restructuring its debt as well as deepening the capital market should it be listed on the MSE.
He said development bonds are there to efficiently raise money specifically for development and not for consumption.
Meanwhile, the government is also establishing the Debt Retirement Fund, a special fund that will be used only to retire debt as it matures, as a means to ease government’s public debt burden.