Malawi Government through the Reserve Bank of Malawi (RBM), is expected to raise over K11 billion (about $27.5m) in Treasury Bills (T-Bills) in two weeks to finance the rolling debt.
RBM reports indicate that during the T-Bills auction held last week [May 13], government raised K6.06 billion (about $15.1m) against an announced amount of K6 billion (about $15m).
Government is this week expected to raise cash amounting to K5 billion (about $12.5m) for financing of maturing public debt.
RBM spokesperson Efford Goneka, in an interview on Monday, said the current T-Bills are being issued to finance rolling debt.
“The T-Bills are for financing government debt. RBM issues such in case where it does not have the money to retire maturing debt otherwise if government has the money, its debt is retired without the issuance of T-Bills,” he explained.
Government has this year been borrowing heavily domestically which is against its fiscal policy of zero net domestic borrowing.
Between January and March this year, government borrowed over K30 billion (about $70m) through T-Bills thereby choking the financial market and causing a rise in commercial bank interest rates to over 50 percent.
Due to the huge appetite for local borrowing and an illiquid market, T-Bills rates consequently jumped from about 25 percent in January to 43 percent in March, way above bank deposit rates and thereby offering lucrative alternatives for bank deposit.
T-Bills rates have, however, recently been declining to average of about 32 percent across all the three tenors.
Money market experts have contended that government’s heavy borrowing is choking the already illiquid market.
They contend that borrowing at that high rate means that government has a big appetite for borrowing.
Explaining the strange behaviour in an interview recently, Ministry of Finance spokesperson Nations Msowoya said government is heavily borrowing because it has less discretion on its expenditure.
Msowoya noted that most T-Bills that have been issued are to settle previous debts that were incurred through ways and means a precursor to the T-Bills.
He noted that there are few options for sources of revenue such as donors and tax and that government is currently struggling to balance revenue and expenditure and the only option is to borrow locally.