The Institute of Chartered Accountants in Malawi (Icam) has warned Treasury that increased borrowing in the 2020/21 fiscal year will put pressure on macroeconomic stability.
In his analysis of the tax measures introduced in the 2020/21 National Budget, Icam chief executive officer Francis Chinjoka Gondwe observed that increased borrowing could put pressure on exchange, inflation and interest rates.
“The four main consequences arising from this [borrowing] are lower national savings and income, higher interest payments leading to large tax hikes, spending cuts and decreased ability to respond to problems,” he said.
Treasury projects the 2020/21 fiscal balance to swell to K651.5 billion, an equivalent of 9.1 percent of gross domestic product (GDP) or a third of the K2.02 trillion budget.
The deficit is expected to be financed by foreign and domestic borrowing amounting to K161.5 billion and K490 billion, respectively.
In his 2020/21 National Budget Statement, Minister of Finance, Economic Planning and Development Joseph Mwanamvekha based the fiscal plan on assumption of a growth rate of 1.9 percent in 2020 and 4.5 percent in 2021; an average inflation rate of 9.9 percent; a stable exchange rate of about K750 to the dollar and a policy rate of 13.5 percent.
He said rising public debt is a major worry for the government and its impact on budget implementation is enormous as interest payment is a statutory expenditure that cannot be deferred or cut in the event of resource constraints.
In its recent brief, the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) said despite the country’s debt being high, the weak fiscal position that the economy finds itself in makes government borrowing the only available option.