Malawi Government can rather use domestic debt resources to infrastructure development than put it to its mouth if the country was to realise development in the long term, a socio-economic commentator has said.
Collins Magalasi currently the executive director of Zimbabwe-based African Forum and Network on Debt and Development (Afrodad) said last week resources for infrastructure development, boosting production and local markets can be locally raised by Malawi Government through the domestic debt market, but sadly this government and before it, use domestic debt money for consumption.
“Domestic debt financing is more expensive than foreign borrowing. This may be explained by the ongoing financial liberalisation which has resulted in sharply rising real treasury bill rates, but also by the fact that Malawi borrows externally on highly concessional terms.
It is, therefore, sad to see that this expensive money is abused by consumption by the government. The burden is then pushed to the taxpayer who digs deep to pay back the debt,” said Magalasi.
The former Mejn boss told The Nation in an interview at the just ended Conference of Finance Ministers in Abidjan, Ivory Coast, that even though the ratio of domestic debt to GDP is modest, domestic borrowing still assumes a large part of financial resources, given the thin and shallow financial market in Malawi.
According to the International Monetary Fund (IMF), the ratio of domestic debt to broad money has been constant at about 40 percent throughout the last 20 years in sub-Saharan Africa because commercial banks hold more than half of the outstanding domestic debt, hence expansion in domestic debt has had a significant negative impact on private sector lending.
Magalasi said besides, domestic markets are mainly short-term, “with the most common maturity being three months”.
“Consequently, domestic interest payments present the same burden to the budget as the foreign debt does, even though the domestic debt burden comprises only a fraction of the total debt burden.
It is my view that we start to invest this money in infrastructure as we do with pension money so that in the long-term we benefit from domestic resources that government borrows on our behalf,” he said.
Magalasi says Malawi must also put in place policies and strategies that allow financial and capital markets to make credit available to SMEs, who constitute over 75% of Africa’s intra-trade.