Malawi’s public debt is projected to soar to 68 percent of the gross domestic product (GDP), a situation an expert has described as worrisome.
Nico Asset Managers, in its March Economic Report quoting the Economic Intelligence Unit (EIU) 2013 Quarter One Report, says the 2013 public debt GDP ratio will rise 28 percentage points above the last three years’ average of 40 percent and six percentage points above 2012 debt to GDP ratio.
“Public debt’s percentage of GDP is forecast to increase from 62 percent to 68 percent in 2013, which is above the three- year historical average of 40 percent. External debt and public debt is on the increase and efforts to finance it may see a possible increase in tax or a reduction in government spending. The International Monetary Fund [IMF] earlier called for further tightening in government spending but Malawi has missed the set target on social spending as prescribed,” reads the report in part.
Commenting on the debt forecast, Chancellor College economics professor Ben Kaluwa, in a telephone interview on Wednesday, said it is a recipe for trouble.
Said Kaluwa: “The Malawi Government expenditure is less discretionary in that there is less room for government to manoeuvre to reduce the debt, since most of the budget lines are on social floors, for instance education and health services.
“A rise in domestic debt will certainly cause a rise in debt charges such as treasury bills’ yields and will therefore push up interest rates. An increase in external debt is even more worrisome since it has foreign exchange rate risk which is associated with the depreciation of the kwacha, that is as the kwacha falls the debt will rise.”
However, Malawi’s Ministry of Finance spokesperson Nations Msowoya, responding to an e-mailed questionnaire on Thursday, said external debt is projected to increase gradually while domestic debt is expected to decline.
“The rise in the public debt to GDP ratio is on account of devaluation, exchange rate fluctuations and performance of the GDP. Malawi’s external debt has been increasing gradually from $1.19 billion as of December 2012 to $1.25 billion as of March 2013. By December 2013, the external debt stock is projected at $1.4 billion
“On domestic debt, the government is undertaking a zero net domestic borrowing policy in the current fiscal year that is, government is committed to repay its domestic debt. To that effect, by the end of December 2012, government retired domestic debt amounting to K18.6 billion [about $44.3m] which translated to a reduction of the domestic debt stock to K205 billion [about $488m] from K223 billion [about $530m] reported in June 2012. As of end March 2013, the gross domestic debt rose to K 242 billion [about $576m],” said Msowoya.
However, an analysis of treasury bills issued between January and March this year, shows that government has so far borrowed over K30 billion (about $71.4m).
According to Malawi’s Annual Debt Report released by the Ministry of Finance in October 2012, as of end June last year, Malawi’s total public external and domestic debt stock amounted to $1.926 billion, equivalent of 54 percent of GDP, compared to $2.0913 billion or 33.6 percent of GDP in the corresponding period in 2011. The report adds that the total public debt grew by 67 percent in the year ending June 30 2012 as compared to the previous year of 2011.