Minister dispels high borrowing fears
Finance Minister Maxwell Mkwezalamba has allayed fears that Treasury will likely resort to heavy borrowing from the domestic market to patch up revenue gaps in the wake of the aid freeze by Malawi’s major development partners.
The minister said this in Lilongwe on Wednesday during a news conference organised by the International Monetary Fund (IMF) to brief the press on the outcome of its two-week mission in Malawi, to conduct discussions for the third and fourth reviews under the Extended Credit Facility (ECF) arrangement.
“There should be no fears of government resorting to heavy borrowing. The discussions we have had [with IMF] were such that government should spend within available resources,” Mkwezalamba responded to Business News query.
In the 2013/14 budget statement, government insisted that the current fiscal stance of ‘No Net Domestic Financing’ is aimed at reducing domestic debt stock which piled up to K170.6 billion.
Economic analysts have, in the wake of budget support freeze, cautioned that Treasury may resort to heavy borrowing from the domestic market which often culminates into crowding out the private sector, pushing up interest rates and stiffling investment levels.
Two weeks ago, Malawi’s major donors under the Common Approach to Budgetary Support (Cabs) announced the withholding of $150 million (over K60 billion) earlier earmarked for October and December 2013, due to financial mismanagement at Capital Hill.
Earlier, IMF announced the suspension of $20 million under ECF over the same concern.
Mkwezalamba said with the current economic situation, already government has critically looked at both revenue and expenditure and said there is need for reduced spending.
He said the recent announcement in the reductions in travel budget and in other low priority expenditure items will also aid government not to borrow heavily from the domestic market as has been the case in the past.
“We think revenue performance will also help us execute the budget and we are also committed to implementing various recommendations in the action plan so that we get development partners back on board not in distant future,” he said.
Recently, government adopted the Action Plan and the Extraordinary Performance Assessment Framework which, according to IMF, is key to initiate a process of normalising relations between government and development partners.
During the press conference, IMF mission chief to Malawi Tsidi Tsikata 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 announced cuts in the travel budget, but further called for postponement of domestically financed development projects.
“With fiscal space constrained, recourse to domestic borrowing is sharply limited by the need to prevent a resurgence of inflation and to preserve international reserve levels,” said Tsikata.
