Malawi domestic borrowing rises to K154.4 bn

Malawi Government’s net domestic borrowing rose to K154.4 billion in April from K153.2 billion the previous month, breaching its main fiscal cornerstone, indicates Reserve Bank of Malawi (RBM) April 2013 Economic Review.

Increase in domestic borrowing leads to crowding out of the private sector thereby choking the engine of economic growth. The breach of the fiscal tenet may also see interest rates rise making borrowing expensive and increasing default rates.

The report released last week, explains that the domestic borrowing rose on account of net credit extended by the monetary authorities. The report however notes that in contrast, government reduced its outstanding debt at the commercial banks.

“The monetary authorities’ net claims on the central government rose to K121.2 billion in April 2013 from K116.1 billion recorded in the preceding month. The outturn was attributed to K3.3 billion uptake of Ways and Means advances, K1.1 billion depletion of government deposits, and a K701.7 million increase in open market operations treasury bills holdings. At the commercial banks, government reduced its indebtedness by K3.9 billion to K33.2 billion in April 2013 from K37.1 billion recorded in March 2013. This decrease was a result of redemption of K2.4 billion worth of maturing treasury bills coupled with outright sales of K600 million treasury notes, which were partly offset by accumulation of K834.6 million government deposits. In April 2013, the banking system recovered K410.5 million of its outstanding claims on parastatals,” reads the report in part.

For both the 2013/14 and current budget, government has been using the no net domestic borrowing as its fiscal anchor.

Speaking in parliament in the budget statement, Minister of Finance Ken Lipenga acknowledged that programme targets have been missed in the past primarily on account of loose fiscal stance.

“This fiscal stance is intended to reduce the domestic debt stock to allow the private sector space to borrow at reasonable rates for productive investment. The private sector as the engine for growth and development must be allowed to operate in a conducive environment. One such element in this atmosphere is financing at reasonable interest rates,” said Lipenga.

But recently, Government, proposed for an increase on the ceiling on the central government’s net domestic borrowing as indicated by an International Monetary Fund (IMF) Report.

While commenting on the development Ministry of Finance spokesperson Nations Msowoya said the proposed change was on account on delays in grants disbursements

Msowoya explained that the proposal was due to delays in disbursements of the Education Sector Wide Approach but added that the grants were received and were used to offset the borrowing incurred

The IMF report indicates that actual central government’s net domestic borrowing by end-December 2012 stood at negative K18.2 billion. However, the cumulative ceiling has been revised from K4.4 billion to negative K3.4 billion by end-March 2013, negative K15.02 to negative K18.61 billion by end-June 2013, and negative K5.21 billion by end-September. By end-December 2013, IMF targets net domestic borrowing to improve to positive K25.21 billion and before slightly declining to positive K21.28 billion by end-March 2014.