The World Bank has faulted Treasury’s decision to raise a 15-year K1 trillion infrastructure development bond, saying it will attract high interest rates.
Commenting on the decision by government in its 13th edition of the Malawi Economic Monitor (MEM) released on Friday, the World Bank said the bond will attract high interest rates even if it is carried out off-budget.
Reads the MEM report in part:“The government further indicated that it will raise, over a period of five years, a 15-year development bond of K1 trillion for 15 projects which have not been included in the budget.
“However, especially for a 15- year bond, this will be at very high interest rates [the bond]– 10-year Treasury notes currently have a yield of 22.5 percent – and will add considerably to already high public debt levels, even if it is carried out off-budget.”
The bank said many of the proposed projects to be financed by the bond are roads, which it says should have undergone close cost-benefit analysis to determine whether they justify financing costs of over 20 percent.
It adds: “This follows the government already issuing a K21 billion long-term development bond as the first step in the construction of the 10 000 houses for security institutions, for which over 231 houses are under construction.”
Treasury said it will use part of the K1 trillion long-term infrastructure bond to rehabilitate and upgrade eight roads and other projects not included in the K1.9 trillion 2021/22 National Budget.
The targeted K1 trillion that government wants to raise from the domestic market represents 13 percent of the value of the national economy as measured by gross domestic product (GDP).
Commenting on the matter, economist Bond Mtembezeka said yesterday that the development bond in itself is not bad but stressed that before issuing it, government was supposed to consider a number of issues.
He opined: “Does it have the ability to repay? How will it raise funds to repay? Do the earmarked development projects offer real economic gains?” he wondered.
Mtembezeka advised that before government acquires more debt, there was need for it to come up with a realistic debt repayment plan.
Last week, Malawi Stock Exchange (MSE) chief executive officer John Kamanga argued that it was practical to raise the money as the funds would be raised in tranches over a period of time.
However, former Finance minister Joseph Mwanamvekha, who is also Democratic Progress Party spokesperson on matters of finance in Parliament, recently told parliament that it was practically impossible to raise the required sum of money from the local market.
Meanwhile, Malawi’s public debt has sky-rocked to K4.76 trillion, representing 54 percent of gross domestic product (GDP).
At K4.76 trillion, the debt stock is almost three times the size of the 2021/22 National Budget which is valued at K1.9 trillion.
The public debt stock is also half the size of the national economy which is now valued at K8.1 trillion.