Malawi over-borrowed by K59bn in first quarter
Treasury has admitted that it over-borrowed domestically in the first quarter of the 2013/14 National Budget by K58.7 billion between July 1 and September 30 this year.
Secretary to the Treasury Newby Kumwembe made the admission on Wednesday when he appeared before the Budget and Finance Committee of Parliament in Lilongwe where he updated the committee on the impact of Capital Hill cashgate on the implementation of the budget.
Said Kumwembe: “The implementation of the 2013/14 budget during the first quarter was characterised by high domestic borrowing and the cashgate scandal. The over-borrowing amounted to K58.7 billion.”
Economic analysts have, in the wake of budget support freeze to Malawi by donors under the Common Approach to Budget Support (Cabs), cautioned that Treasury may continue to resort to heavy borrowing from the domestic market which often culminates into crowding-out the private sector, pushing up interest rates and stifling investment levels.
Cabs, a grouping of Malawi’s major donors, are withholding $150 million (over K60 billion) earlier earmarked for the October to December 2013 quarter due to financial mismanagement at Capital Hill.
Added Kumwembe: “The main contributors [for the over-borrowing] were spending on domestic interest, arrears clearance, and domestically-financed development projects.”
He informed the committee made up of Members of Parliament (MPs) that the over-borrowing had accompanying liquidity effects which weakened the monetary policy stance.
He said cashgate cost K8.9 billion and it accounted for higher than anticipated expenditure.
Kumwembe also said the suspension of the budget support meant that part of the budget was not financed; hence, creating a fiscal gap.
He said such a situation necessitated adjustments to the budget framework; hence, revising the budget which was agreed with the International Monetary Fund (IMF) in June 2013.
The revised 2013/14 budget has gone up by K4.5 billion to K640.3 billion from the initially projected K635.8 billion.
Last month, Minister of Finance Maxwell Mkwezalamba allayed fears that Treasury will resort to heavy borrowing from the domestic market to patch-up revenue gaps in the wake of the prevailing aid freeze by Malawi’s major development partners.
IMF mission chief to Malawi Tsidi Tsikata also observed that in the first quarter of 2013, government borrowed heavily from the domestic market to cover-up the withheld donor funds.
Tsikata said IMF welcomes the recently announced cuts in the travel budget but further called for postponement of domestically-financed development projects.
