Interest charges choke treasury
Treasury has been left choking with interest charges on domestic borrowing following the recent policy hike adjustment, Business News has established.
Last week, the Reserve Bank of Malawi (RBM) raised the policy rate by 200 basis points to 24 percent from 22 percent, consequently hiking debt service charges.

The hike comes at a time Treasury’s projections had put the policy rate at 18 percent, 600 basis points above the current rate.
During the current financial year, Treasury had estimated to spend 24 percent of its K3.87 trillion national budget on public debt interest, a rise from the previous year’s 18 percent.
During the year, Treasury projects to spend K878. 9 billion towards domestic debt service and borrow K1.18 trillion from the domestic market.
In an interview on Tuesday, economist Frederick Changaya, who is also a former Monetary Policy Committee member, described the policy hike as a blow to fiscal containment.
He said: “We do deficit financing for our economy. So, borrowing is a key embodiment of our budget and budget management.
“Application of such borrowed funds is something no one has really factored into the model or framework of monetary policy.”
Changaya, who is Applecore Grain and Milling Limited managing director, called for a more and dynamic and creative monetary policy framework to be able to relate to the times and environments.
Economist Hopkins Kawaye said the rise in policy rate will put pressure on Treasury as it will have to look for more resources to pump into debt service.
He said: “This will affect interest payments as debt servicing costs will increase from 18 to 24 percent.
“The more we are raising the interest rates the more we are raising the cost of debt service.”
Amidst rising domestic interest rates and high domestic debt levels, Treasury projects interest payments will increase to 5.7 percent of gross domestic product (GDP) in the current financial year from 4.8 percent of GDP the previous financial year, leaving little room for much-needed investment, and constraining the government’s ability to respond to shocks.
The joint World Bank-IMF November 2022 Debt Sustainability Analysis reported that public debt is in distress under current policies, but achieving progress in the ongoing debt restructuring negotiations with commercial and bilateral creditors would bring debt on a downward trajectory over the medium-term.
Meanwhile, in the current budget, Treasury has projected a fiscal deficit of K1.3 trillion, an equivalent of one-third of the K3.87 trillion 2023/24 National Budget.