MCCCI decries crowdingout effect, stifling growth

Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has lamented the crowding out effect caused by Treasury’s growing appetite to borrow from the domestic market.

MCCCI president Lekani Katandula said this in reaction to a debt issuance calendar issued by the Reserve Bank of Malawi (RBM) which indicates that Treasury plans to borrow K685.08 billion through Treasury bills and notes between April and June this year.

The figure is almost half of the K1.187 trillion that Treasury plans to borrow from the domestic market in the 2023/24 fiscal year which started on April 1.

Katandula, who is also Illovo Sugar (Malawi) plc managing director, said banks are now attracted to the government at fairly attractive interest rates as domestic debt grows at the expense of more risky lending to the private sector.

He said: “One can only hope that the government borrowing will be directed to productive investments and that the government will soon contain its borrowing to restore the attractiveness of private sector lending for the banks.”

Already, government’s domestic debt uptake by the banking sector remains high at over 65 percent, according to audited financial statements from banks and World Bank calculations.

Malawi University of Business and Applied Sciences associate professor of economics Betchani Tchereni said while commercial banks are smiling as they know they will make huge profits, the real sector is the major sufferer.

He said: “When government is borrowing a lot like it is now, commercial banks are assured of a ready market, but meanwhile as this is happening, the private sector is left out.

“For industrialisation to take off, one has to rely on external funding yet banks have deposits lying idle ready to extend the same to the government.”

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

“For years, financial institutions have looked at the SMEs sector as high risk and have perpetually avoided them,” he said.

Treasury data shows that Malawi’s public debt stands at K7.9 trillion as at December 2022, with domestic debt estimated at K4.43 trillion.