The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) on Tuesday blamed the current wave of high interest rates in commercial banks on last week’s government borrowing from the domestic market at high interest rate.
MCCCI, has since warned that the prevailing high interest rates are bound to choke most businesses and, consequently, stifle private sector investment, thereby constraining economic growth.
“Last week government borrowed money [through Treasury Bills] at 40 percent and banks look at rates of Treasury Bills as their benchmark for interest rates,” said MCCCI chief executive officer Chancellor Kaferapanjira.
Currently, commercial banks have, since last week, been issuing statements announcing the upward revision of interest rates.
Most banks indicate that the benchmark for the revision in the rates is the charges in the interest rate yield in accordance with the government Treasury Bills (T-bills) auction held on January 7 2014.
Kaferapanjira said high T-bills rates are indicative of huge government appetite for domestic borrowing, which tends to crowd out the private sector.
He said as T-bills rates become attractive, most depositors do not invest in bank deposits, arguing that investing in T-bills becomes lucrative to investors.
“This [high interest rates] is bad for business and, such an environment, has been made worse by authorities. We have e-mails flying around from businesspeople complaining about high interest rates in the country,” said Kaferapanjira.
A Lilongwe-based banker, who did not want to be named, on Tuesday said borrowing at high rate is a signal that government has a huge appetite for borrowing.
The banker said whatever the case, government is certainly crowding out the private sector, thereby driving up interest rates in banks.
Minister of Finance Maxwell Mkwezalamba was not immediately available for comment on government’s appetite for borrowing.
But towards the end of last year, he allayed fears that Treasury will likely resort to heavy borrowing from the domestic market to patchup revenue gaps in the wake of the prevailing aid freeze by Malawi’s major development partners.
Economic analysts recently raised an alarm that in the wake of budget support freeze, Treasury may continue borrowing heavily from the domestic market.
Malawi’s major donors under the Common Approach to Budget Support (Cabs), are still delaying $150 million (over K60 billion) earmarked for last quarter of 2013 due to financial mismanagement at Capital Hill, dubbed cashgate.
Secretary to Treasury Newby Kumwembe recently admitted that government over-borrowed domestically in the first quarter of the 2013/14 fiscal year by K58.7 billion.