World Bank urges caution on debt
Malawi needs a sustainable fiscal policy to reduce debt service costs and create a foundation for macro-stability and growth, the World Bank has said.
In its 13th Malawi Economic Monitor paper titled Investing in Digital Transformation, the World Bank argues that fiscal consolidation in the medium-term will be needed, observing that recurrent expenditure should be paid for as much as possible by domestic revenues instead of domestic borrowing.
The bank says this will require prioritising expenditure in a sustainable medium-term fiscal framework, based on realistic revenue and grant assumptions
Reads the report in part: “Government needs to make hard choices about expenditure priorities, including ensuring that subsidies for agricultural production are sustainable and containing an increasing wage bill.
“Domestically-financed development expenditure— including that funded off-budget—should undergo a rigorous cost-benefit analysis to ensure it is justified by high borrowing costs.”
The rising domestic debt previously pushed Malawi into high risk of debt distress and is projected to continue rising sharply
This is expected to reduce fiscal space with domestic borrowing reaching 5.9 percent of the gross domestic product (GDP) in the 2021/22 financial year.
In the 2021/22 financial year tsarting this July 1, public debt interest is projected at K299.7 billion or 2.9 percent of the rebased GDP.
Of this amount, K14.5 billion is payable to non-residents while K285.3 billion is payable to residents.
In an interview yesterday, Malawi University of Business and Applied Sciences associate professor of economics Betchani Tchereni said government needs to guard its debt which has become dangerous for the macro-economic environment.
He said: “Government business should not be crippled, but borrowing in this manner to the extent where we do not seem to have a cut-off point is worrying and concerning.”
Minister of Finance Felix Mlusu is on record as having admitted that the high and rising public debt remains a major concern.
To counter this, the minister said government will implement a number of fiscal consolidation initiatives, including but not limited to enhancement of external resource mobilisation, domestic revenue mobilisation, public expenditure efficiency and prioritisation.
