RBM warns treasury on rising public debt

R

eserve Bank of Malawi (RBM) Governor Dalitso Kabambe has advised Treasury to rein in on both domestic and external borrowing, warning that there is insufficient room for further borrowing.

The governor’s pronouncement comes on the back of figures showing  public debt at $4.3 billion (K3.2 trillion) or 68 percent of gross domestic product (GDP) with domestic debt at $2.2 billion (K1.6 trillion) or 34.9 percent of GDP and external debt at $2.1 billion (K1.5 trillion) or 33 percent of GDP.

The figures are above the internationally accepted threshold of 20 percent of GDP for domestic debt and 30 percent of GDP for external debt.

Kabambe said his fiscal policy counterpart Minister of Finance, Economic Planning and Development Joseph Mwanamvekha has assured him that Treasury will tackle domestic borrowing in the 2019/20 financial year and other subsequent financial years.

The 2019/20 National Budget is set to be presented later in September this year.

“We have been having discussions with the Minister of Finance and we have been assured that as they craft next year’s budget, one of the centerpieces of that budget will be on how we can begin to deal with domestic debt in particular,” Kabambe told journalists on Thursday Lilongwe on the sidelines of a dinner organised for the African Export and Import Bank (Afreximbank) delegation led by its president Benedict Oramah.

“It [domestic debt] is quite on the higher side and that is an area in my understanding, the Minister of Finance, will focus on in the next budget,” said Kabambe.

“So, there isn’t sufficient room any more for further public sector borrowing. Any further [foreign]

borrowing will mean heavy repayments in terms of foreign exchange payments outside the country,” he warned.

Currently, Mwanamvekha is keeping his fingers crossed to ensure a reduction in domestic debt between July and October 2019 as outlined in the three months K511 billion provisional budget.

According to the World Bank, total government domestic borrowing has increased by 44 percent over the past year, but largely from the banking sources.

With the  revised RBM Act in place, the central bank’s advances to Malawi Government are now limited to 10 percent of total budget revenue, an attempt to address central government’s insatiable appetite to over-borrowing. But even though borrowing from banks and non-banks is said to be less inflationary, economic experts say it could potentially crowd out private sector investment.