Economic analysts and the World Bank have expressed concern that government’s continued reliance on Treasury notes (T-notes) would worsen the country’s debt burden and exacerbate pressures on the fiscus.
The concerns follow observations made by the World Bank in its latest issue of the Malawi Economic Monitor (MEM), a biennial publication produced by the Bretton Woods institution.
T-notes are government debt securities that are issued to investors for the government to borrow money. They typically have medium to long-term maturities, ranging from one to 10 years and pay interest (coupon payments) periodically until they mature.
According to the report titled The Rising Cost of Inaction, T-notes value have risen sharply from K154.9 billion in 2015 to more than K7.2 trillion in October last year. This represents an increase of 49.5 percentage points.
Reads the MEM in part: “Treasury notes are traded at a significant discount due to the wide margin between their coupon rates and yields across tenors, which enhances their attractiveness to investors, but comes at a steep cost to the government.
“By contrast, the issuance of Treasury bills has increased only modestly, constrained by the PFM [Public Finance Management] Act’s limit on the outstanding stock to 25 percent of annual budgetary revenue.”
In an interview yesterday, Mzuzu University economist Christopher Mbukwa notes that the government’s growing reliance on T-notes and other forms of domestic borrowing are a result of necessity, considering that most external lenders are reluctant to extend credit to Malawi.
He further cautioned that the lack of a robust secondary market for government securities impacts debt sustainability.
“Liquidity management leads to higher borrowing costs, affects the efficiency of RBM [Reserve Bank of Malawi] operations, and leads to poor collateral quality, which can affect the financial markets,” Mbukwa said in a WhatsApp response. “Furthermore, investor confidence may be affected, and overall, it can affect economic growth.”
On his part, economics researcher and analyst Exley Silumbu, who also teaches economics at the University of Malawi, observed that the T-notes will pile pressure on the government when they mature.
“At the moment, debt payments already take up 43 percent of the country’s domestic revenues,” he said in a WhatsApp response. “If this continues to grow, this might rise and limit the government’s capacity to spend on other budget lines.”
Speaking during a panel discussion held on the sidelines of the MEM launch, financial management and governance consultant Elias Ngalande urged the government to control “wastage” in budget expenditures.
Ngalande, a former RBM governor, argued that ensuring efficiency in public finance management would reduce deficits, and by extension, limit the government’s demand for domestic borrowing.
Malawi’s debt has ballooned to more than 80 percent of gross domestic product, higher than the 65 percent recommended by global financial institutions such as the International Monetary Fund and World Bank.
