IMF in fresh calls for govt to tame domestic borrowing

The International Monetary Fund (IMF) has advised government to tame its appetite for domestic borrowing from commercial banks, saying the development could affect the financial sector.

In its country report for Malawi published last week, the global lender observed that the increase in the exposure of the banking sector to the public sector and further increases in interest rates pose potential risks to the soundness of the banking sector.

“In the absence of other government financing sources, banks are increasing their exposure to government securities, posing concentration risks and squeezing their ability to engage in growth-enhancing lending to the private sector,” reads the country report in part.

The IMF has since noted that though the banking sector is currently well capitalised with sufficient profitability, liquidity is at times inadequate.

Reserve Bank of Malawi data shows that government’s net borrowing from commercial banks is on the rise while credit extended to the private sector is declining.

Chamber for Small and Medium Businesses Association executive secretary James Chiutsi said in an interview that government’s huge appetite for borrowing is compelling banks to consider the private sector as less lucrative.

“Financial institutions have looked at small and medium enterprises sector as high risk,” he said.

Currently, Malawi’s public debt stands at K7.9 trillion as at December 2022, with K4.43 trillion being domestic debt and K3.47 trillion is external debt.