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Malawi legislation to curb govt borrowing

Lipenga:At the helm of treasury
Lipenga:At the helm of treasury

Malawi Government, reeling from the K170.6 billion (about $426.5m) domestic debt in the 2012/13 fiscal year, is mulling on a new legislation to limit borrowing from the Reserve Bank of Malawi (RBM) to 10 percent of domestic revenue from the current 20 percent.

Treasury, smarting from accusations of insatiable appetite for domestic borrowing, argues this is a show of commitment to “prudent fiscal operations and to help in containing inflation and building reserves”.

Finance Minister Ken Lipenga, in the 2013/14 budget statement, said a total of K7.2 billion (about $18m), or 0.5 percent of gross domestic product (GDP), will be used to repay domestic debt in the 2013/14 fiscal year.

This will effectively reduce domestic debt stock from K170.6 billion at the end of 2012/13 financial year to K163.4 billion (about $408.5m) at the close of the 2013/14 fiscal year, in line with the fiscal anchor of no net domestic financing.

Fiscal discipline

The International Monetary Fund (IMF) mission, at the conclusion of the ongoing Extended Credit Facility (ECF) third review on Tuesday, highlighted the need for fiscal discipline to “consolidate emerging gains from ongoing policy reforms”, by spending within available resources.

The IMF recommended wage restraint, the identification of lower priority expenditures that can be cut or postponed in the event of funding gaps, better enforcement of announcement expenditure control measures and adherence to regulations governing the procurement of goods and services using purchase orders generated through the Integrated Financial Management Information System (IFMIS).

Treasury spokesperson Nations Msowoya told Nation Online on Thursday the legislation is a continuation of the process of harmonising legislation of the Sadc central banks and strengthening the RBM’s corporate governance.

“The aims of the current amendments are, therefore, to give more independence to the central bank, ensuring that international account and auditing practices are used and reducing the amount of money that government can borrow from the central bank,” he explained.

Msowoya, who is also the assistant director for debt and aid management in the Ministry of Finance, said many countries in the world are using such legislation, commonly referred to as fiscal rules, which imposes a long lasting constraint on fiscal policy through numerical limits on budgetary aggregates.

He said the purpose of such rules is to correct distortive incentives in policy making and contain pressures to overspend, to ensure fiscal responsibility and debt sustainability.

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