Institute of Chartered Accountants in Malawi (Icam) has warned that external borrowing could expose the country to currency risks, which may result in kwacha depreciation.
Icam chief executive officer Francis Chinjoka Gondwe said this on Saturday in reaction to the proposed 2019/20 National Budget presented by Minister of Finance, Economic Planning and Development Joseph Mwanamvekha.
He, however, observed that government’s borrowing externally to reduce fiscal deficit rather than domestically may reflect its desire to sustain low domestic interest rates.
In the statement presented in Parliament last week, Mwanamvekha said the fiscal plan has been prepared to reduce domestic borrowing to cut public debt as guided by the Medium Term Debt Strategy.
But while observing that the proposed levels of borrowing appears low, Icam’s Gondwe said borrowing further may take the cumulative debt to unsustainable proportion, especially now that Treasury’s means of financing the budget is not clear given the contraction in the economy occasioned by political risk among others.
He said: “The budget has a deficit of K155.9 billion. Where will the resources come from to bridge this gap? The current political impasse means that revenue collection will no doubt have slowed down in the first quarter of 2019, which will be exacerbated by a slowdown in economic activity and investment due to uncertainty.”
Mwanamvekha admitted that Treasury is facing challenges in fiscal deficits and public debt, with deficits contributing to rising public debt recorded at 62 percent of gross domestic product (GDP) as at end December 2018.
“The Medium Term Debt Strategy outlines measures that will translate into a reduction in domestic debt to 20 percent of GDP by 2023.
“Government recognises that a reduction in domestic debt requires an increase in revenue and reduction in expenditure to create fiscal space for retiring debt,” he said.
Treasury figures indicate that for the 2019/20 fiscal year, payment of interest on the country’s public debt is projected at K243.9 billion or 3.9 percent of GDP, representing 8.8 percent increase from last financial year.
Of this total, K15.5 billion is for foreign interest payment while K228.5 billion is for domestic interest payment.
Catholic University of Malawi dean of social sciences Gilbert Kachamba in an interview observed that the move is too little too late as at 62 percent of GDP, this is an indicator that debt is getting out of the ceiling; hence, the need to focus on areas that will move the country forward.
“There are some other things in the budget which need not to be there. Government needs to focus on key areas that will take the country forward,” he said. n