The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has expressed concern over government’s plans to increase domestic borrowing in the 2018/19 Financial Year.
In his budget statement to Parliament in Lilongwe on May 18, Finance Minister Goodall Gondwe said government plans to borrow K176 billion from the domestic scene, an increase from the previous K30.7 billion in the 2017/18 due to diminished foreign borrowing.
But MCCCI chief executive officer Chancellor Kaferapanjira in his analysis of the fiscal plan said the development is worrying, considering that Malawi is already above the 20 percent threshold on domestic borrowing.
He said heavy domestic borrowing is likely to have implications on the gains made on macroeconomic stability as well as crowd out the private sector.
“Of concern to the private sector is domestic borrowing which the budget statement alluded to going to rise by K176 billion due to diminished foreign borrowing. This is a very worrying trend for the private sector considering that Malawi is already above the 20 percent threshold for domestic borrowing.
“This is likely to influence an upsurge in the interest rates and crowd out private sector capital. The money that would be borrowed by government if also not used for productive purposes will further push up inflation rates,” he warned.
The development is coming at a time when Malawi’s total public debt continues to soar to K2.7 trillion, which is 55 percent of the gross domestic product (GDP), amid rising fiscal deficits.
According to a published 2018/19 Draft Financial Statement, external debt accounts for K1.466 trillion or 29 percent of GDP while domestic debt accounts for K1.285 trillion or 26 percent of GDP as at end December 2017.
Gondwe told lawmakers last week that government would increase domestic borrowing to finance the expected budget deficit.
He said: “The economy, as Members will recall, was at its worst ever. Such a state of the economy was triggered by a financial hemorrhage of the government that left its coffers empty and led the donors to boycott this country. Therefore, in order to maintain the level of its deliverance of services to the people, the Government went into a huge domestic borrowing and abandoned sizeable payments to its creditors in the private sector.
“The overall balance (budgetary deficit) is expected to amount to K242 billion which is 4.5 percent of GDP. However, in view of diminished net foreign borrowing, domestic borrowing is expected to rise to K176 billion,” he said.
In an interview, Economics Association of Malawi (Ecama) president Chikumbutso Kalilombe said increased borrowing will weigh negatively on the country’s economic policy targets especially in meeting fiscal benchmarks, such as borrowing limits, and thereby extorting pressure on inflation dynamics in the country.
“As government borrowing increases to meet widening deficits, pressure on inflation to go up increases, interest rates also increase thereby affecting overall macroeconomic stability,” he said.—Read Kaferapanjira’s budget analysis in Opinion and Analysis Section.