President Lazarus Chakwera says he is worried about the country’s rising public debt stock, which soared to K4.1 trillion as of June 2020, an increase from K3.4 trillion recorded in December 2019.
Such a debt stock is 59 percent of the country’s total wealth as measured by nominal gross domestic product (GDP) estimated at $7 billion (about K5.2 trillion).
Making his maiden State of the Nation Address (Sona) at Parliament in Lilongwe on Friday, Chakwera said 57.3 percent of such total debt stock is domestic, representing 33 percent of GDP.
In the past year alone, he said public debt rose by K430 billion and such an increase in debt within one year represents 60 percent of the current K722 billion interim budget, which expires on October 31 2020.
He said: “This position has resulted into interest charges reaching the region of 36.6 percent of GDP.
“In other words, for every K100 we generate, K36.60 is used to pay interest on the debt that we have accumulated, excluding repayment of actual loan.”
In recent times, Treasury has shifted the country’s domestic debt holdings from short-term Treasury bills to longer-term, but expensive Treasury notes, a move which has been criticised by economic experts.
The stock of domestic debt alone increased from 28.2 to 29.7 percent of GDP between 2018 and 2019, according to the World Bank.
Reacting to the skyrocketing debt stock, Economics Association of Malawi president Lauryn Nyasulu in an interview on Friday described the trend as worrisome, stressing that the situation shows that there is more pressure on the fiscus.
She said: “Recently, commercial banks have increased their reference rate by 0.2 percent due to an increase in Treasury bill rates.
“This is an indication that there is already more demand for domestic debt and this has the potential to crowd out private sector investment and growth.”
On his part, market analyst Bond Mtembezeka, who is also research manager for Alliance Capital Limited Malawi, said in an interview that the stock of debt has risen over the last three years, describing the situation as worrisome.
He said: “The government has a huge task of bringing the economy into balance so that it collects more revenue and slowly re-profile back its debt to manageable levels.”
Treasury spokesperson Williams Banda said in an earlier interview that government has an operational debt management strategy to restructure the country’s debt from short-term to long-term.
“The strategy focuses on borrowing externally as opposed to internally since it is concessional and cheaper,” he said.
For the 2019/20 fiscal budget, payment of interest on the country’s public debt was projected at K243.9 billion or 3.9 percent of GDP, representing 8.8 percent increase from the amount paid during the last financial year.
Of this total, K15.5 billion was for foreign interest payment, while K228.5 billion was for domestic interest payment.