Malawi Government paid over K33.1 billion —about five percent of the National Budget pegged at K640 billion—in interest on domestic debt in the first quarter [July to September] of this fiscal year.
This is way above the budgeted K8.2 billion, according to the latest 2013/14 budget performance quarterly report.
The report released by the Ministry of Finance and posted on its website, shows that government paid over K32 billion in domestic debt interest, K25 billion more that the budgeted amount.
However, in the same quarter, government paid about K1 billion in foreign debt interest, which is K366 million below the projection.
Secretary to the Treasury Newby Kumwembe earlier admitted that the first quarter (Q1) was characterised by heavy domestic borrowing, in which government borrowed K59 billion, and the cashgate—the looting of public funds by government and private sector officials.
But commenting on the trend, Ministry of Finance spokesperson Nations Msowoya in an interview yesterday said government has put in place measures to control domestic borrowing.
“We agreed with the International Monetary Fund (IMF) that government should implement a tight fiscal stance. We have so far reduced domestic borrowing and we will only be retiring existing debt without incurring new [debt].
“We are currently spending within our means. This is indicated by the amount of funds that we have been allocating to different ministries,” he said.
Last week, the IMF in a press statement after the third and fourth reviews under the three-year Extended Credit Facility (ECF) noted that authorities are committed to closely monitor expenditure execution and financing to prevent a recurrence of the fiscal slippage that resulted in a substantial increase in domestic borrowing during the first quarter of the 2013/14 fiscal year.
Last week, the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira told Business News that government borrowing from the domestic market is driving interest rates up.
Most of the commercial banks have raised the rate of borrowing and have pegged their rates above 40 percent.
Kaferapanjira warned that the prevailing high interest rates are bound to choke most businesses and consequently stifle private sector investment, thereby constraining economic growth.
The Ministry of Finance quarterly report indicates that in general, government projected to use K108.1 billion to run its daily business during the quarter under review, but expenditures exceeded the target by K41.2 billion.
But the 2013/14 budget statement noted that its fiscal policy would be anchored by no net domestic financing, which meant that government would not incur more debt.