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Home News National News

Public debt soars to K3.7 trillion

by Nation Online
07/02/2020
in National News
2 min read
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Malawi’s debt  stock–combination of domestic and foreign–jumped to K3.7 trillion or 65 percent of GDP during the 2018/19 financial year from K3.1 trillion recorded at the end of the previous year.

The debt stock comprises K1.7 trillion external debt and K1.97 trillion domestic debt. 

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This is according to the 2018/19 Annual Debt Report by the Ministry of Finance, Economic Planning and Development.

graph1 | The Nation Online

Interest payments, on the other hand, amounted to $17.8 million (K12.8 billion) during the review period.

The analysis has cited high primary budget deficit, exchange rate depreciation and high interest rates largely emanating from domestic borrowing as the cause of rising public debt.

Institute of Chartered Accountants in Malawi (Icam) chief executive officer Francis Chinjoka Gondwe warned that further borrowing may take the cumulative debt to unsustainable proportion, especially now that Treasury’s means of financing the budget is not clear given the contraction in the economy occasioned by a political risk, among others.

Economics Association of Malawi (Ecama) statistics show that debt to gross domestic product (GDP) ratio has a maximum threshold of 50 percent with 20 percent being domestic debt and 30 percent foreign debt.

In its December 2019 Malawi Economic Monitor, World Bank’s senior country economist Patrick Hettinger observed that the recent spike in domestic debt poses a significant risk to debt sustainability, given the high debt servicing costs.

“…Government needs to conduct fiscal consolidation, or risk further reducing the fiscal space for discretionary policy expenditure. In addition, it should seek concessional financing for investment projects, focusing on projects with high returns that are aligned to development priorities,” he said.

Minister of Finance, Economic Planning and Development Joseph Mwanamvekha said in his 2019/20 National Budget Statement that the 2019/20 Budget was prepared with the objective of reducing domestic borrowing to reduce public debt as guided by the Medium Term Debt Strategy, which seeks to reduce domestic debt to 20 percent of GDP.

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