Bankers Association of Malawi (BAM) has warned that the new tax measures introduced in the Mid-Year Budget Review Statement risk slowing credit uptake and heightening financial-sector vulnerabilities.
Reacting to the measures, which include a value added tax increase from 16.5 to 17.5 percent and an expanded super-profit tax, BAM president Phillip Madinga said the banking industry expects an immediate inflation pass-through that will weaken consumption, raise lending costs and strain the balance sheets of already fragile businesses.
He said: “These tax changes will lift headline inflation in the short term.
“If revenue gains are not matched with disciplined spending, liquidity conditions will remain tight, money market rates will stay elevated and lending costs will rise for both businesses and households.”
Madinga, who is also Standard Bank Malawi plc chief executive officer, said the super-profit tax will prompt large corporates to delay capital expenditure, rely more heavily on short-term borrowing and tighten investment decisions, thereby weakening banks’ long-term lending pipelines and increase refinancing risks across key sectors.
“High-income individuals and large corporates will feel the squeeze on net cash flows,” he said. “That may weaken overall debt-service capacity, particularly for firms already grappling with foreign exchange shortages and rising input costs.”
Parliament’s Budget and Finance Committee has also raised similar concerns about Malawi’s fiscal position.
Presenting the committee’s assessment last week, the commettee’s chairperson Sosten Gwengwe, a former Minister of Finance, said underperforming revenues and rising expenditure have widened the deficit by K630.18 billion at mid-year, with domestic borrowing now accounting for 94 percent of the financing gap.
“These trends highlight the seriousness of Malawi’s public debt situation,” he said. “Domestic borrowing has become a major risk to the financial sector stability because interest charges are already consuming a large share of resources.”
Gwengwe warned that suggestions to restructure domestic debt would risk destabilising banks that hold large volumes of government securities and undermine government’s ability to raise short-term financing needed to implement the budget.
With interest costs projected at K2.27 trillion and expenditure overruns already recorded across wages, pensions, goods and services and social benefits, the committee said fiscal space is now “extremely tight”.
To avoid a deeper crisis, Gwengwe urged the government to consider “targeted taxation or other fiscal instruments levied on the financial sector.
