Treasury is still borrowing heavily from commercial banks instead of the central bank, recent Reserve Bank of Malawi (RBM) figures have shown.
Published RBM 2019 Reports and Accounts figures on Wednesday show that the banking system’s claims from the government and statutory bodies grew to K684.7 billion in 2019 from K124.8 billion in 2018 with credit to State-owned enterprises surging by K21.3 billion to K55.7 billion in 2019 compared to a growth of K26.4 billion in 2018.
Commercial banks’ net claims from Treasury, however, grew by K175.8 billion to K462.4 billion with Treasury bills (T-bills) and government deposits declining by K30.9 billion to K154.2 billion and by K1.9 billion to K70.9 billion, respectively, in the year.
From the RBM, net credit to government declined by K153.6 billion to K166.6 billion, following another contraction of K76.7 billion in the preceding year.
“The downturn in 2019 was on account of RBM holding of Treasury bills and Ways and Means advances which dropped by K100 billion and K70.4 billion to K943.9 million and nil as at the end of 2019, respectively,” reads the report in part.
But while defending the apparent policy shift, Minister of Finance, Economic Planning and Development Joseph Mwanamvekha said in December that borrowing from RBM proved to be more inflationary as it involves the printing of money.
“We want to be prudent by avoiding the printing of more money which pushes inflation and other macroeconomic indicators,” he said.
Secretary to the Treasury Cliff Chiunda justified Mwanamvekha’s stand saying by resorting to borrowing more from banks and other non-bank institutions, Treasury was also complying with the recent requirement stipulated in the RBM Act which puts a cap on borrowing.
With the RBM Act in place, the central bank’s advances to Malawi Government are limited to 10 percent of total budget revenue, an attempt to address central government’s insatiable appetite for borrowing.
Eariler, the World Bank said that while it was a good move for government to shift its focus from RBM as one key sources of domestic financing, resorting to borrowing from non-banks could also be inflationary through crowding out of the private sector.
Malawi debt to gross domestic product (GDP) ratio has risen from 30 percent of GDP in 2013 to 62 percent of GDP in 2019.
The revised 2019/20 K1.84 trillion National Budget projects net domestic borrowing at 2.3 percent of GDP with K244 billion earmarked for interest payments.