Government pays less debt interest in Q2
Malawi Government paid K16.2 billion in debt interest in the second quarter (Q2)—October to December—K6.2 billion below the projected amount, with interest on domestic debt having the largest deviation from projection.
Second Quarter Performance Report released recently indicates that government budgeted to pay K2 billion interest on foreign debt but only managed to pay about K1.4 billion and projected to pay K21 billion on domestic debt but only managed to pay K14.9 billion.
Commenting on the trend a local money market analyst has however said that the government is most likely defaulting on debt interest given the resources and the heavy borrowing in the first quarter.
The analyst argued that defaulting on debt or interest corrodes confidence in the government and may pose problems to borrow more to supplement the fiscal gap and support services.
Malawi’s main budget support partners suspended aid in November last year forcing the government to cut its expenditures.
In general, according to the report, recurrent expenditures have deviated tremendously in the second quarter as compared to the first quarter and attributes this to the government’s increased restraint in spending which it argues has the potential to stifle public service delivery given the availability of resources.
However, Ministry of Finance spokesperson Nations Msowoya in an interview on Saturday explained that the deviations from the budget are due to exchange rate differences especially on foreign debt.
On domestic debt interest, Msowoya explained that the government paid less interest because of a decline in interest on promissory notes.
However, available data indicates that domestic debt has been increasing.
According to data provided by the National Statistics Office (NSO) government domestic debt stood at about K266.2 billion in November 2013 rising from K265.1 billion in the previous month and K194.5 billion in November 2012.
Treasury earlier admitted that it over-borrowed domestically between July and September by about K59 billion.
According to the Ministry of Finance, in the first quarter government paid over K33.1 billion on debt between July and September 2013, way above the budgeted K8.2 billion having paid K32 billion in domestic debt interest and about K1 billion in foreign debt interest, K366 million below projection.
Recently the market has been shunning government securities government securities the Treasury Bills (T-Bills).
In the T-Bill auction held on April 8 2014, government raised K7.1 billion against an announced K10 billion prompting rates to increase to an average 15.3 percent.
During a T-Bill auction held on April 15 government raised K2.4 billion against an announced K5 billion prompting rates to rise further to an average 16.5 across the three tenors—91, 182 and 364 days.
