Ministry of Finance plans to introduce levies on few items or a special tax for the implementation of the Debt Retirement Fund (DRF).
This follows sentiments by Minister of Finance Felix Mlusu in the 2020/21 National Budget Statement that to repay the huge public debt stock estimated at K4.1 trillion, Treasury is looking at the possibility of establishing a fund.
He said the proceeds of the fund will be ring-fenced and entirely used to retire public debt until debt levels subside to within sustainable levels.
In an interview on Tuesday, Ministry of Finance spokesperson Williams Banda said the only way to retire debt is to record a surplus in the budget, but this has been a problem for a long time as revenues have always remained below expenditures.
He said: “The proposal here is that we will be introducing some levy on a few items or a special tax, ringfence the proceeds and use those resources for retiring debt.
“Somewhere, government introduced a levy on its own expenses and used the money to repay debt. Discussions are underway and I can’t tell when exactly we will have the fund.”
In the proposed K2.2 trillion National Budget, Mlusu said the fund could be turned into a Malawi Sovereign Wealth Fund to support economic activities and the citizens in times of pandemics and natural disasters through bailouts and fiscal stimulus packages.
As at end June 2020, Malawi’s total public debt was recorded at K4.1 trillion, the majority of which at 57.3 percent was domestic debt.
In the 2020/21 financial year, Treasury projects a deficit of K754.8 billion, which will be financed by foreign borrowing amounting to K224.8 billion and K530.1 billion from domestic borrowing.
Chancellor College economics lecturer Lucius Cassim in an interview on Tuesday welcomed the proposal to have a debt repayment plan regardless of how the funds will be sourced.
He said: “What is very important is whether those funds will be idle awaiting debt retirement or will be put in a sensible investment.
“I think it wouldn’t make any financial sense to keep the money idle in a fund and keep borrowing.”
Of the K2.190 trillion expenditure plan for the 2020/21 financial year, K1.679 trillion is for recurrent expenses, with K376 billion for interest payments alone.