Public debt interest rises to K35.6bn

Malawi’s public debt interest is estimated to rise to about K35.6 billion (about $89m) this year, roughly six percent of the 2013/14 proposed total Budget, indicate available documents.

2013/14 Budget document number five indicates that interest payable on public debt is estimated to shoot by about 24 percent from the 2012/13 estimate of K28.6 billion (about $71.5m).

“Interest on debt payment is projected to amount to K35.6 billion up from K28.6billion in 2012/13. The increase in domestic debt interest payments is partly explained by the rise in bank rate while the increase in foreign debt interest payments is on account of the exchange rate,” reads the document in part.

However, Centre for Social Concern (CfSC) social conditions research programme officer, Alex Nkosi, in an interview on Thursday, said the interest charges which are as a result of heavy borrowing will hit the poor and future generations hard.

“The proposed budget is full of contradictions. The Minister of Finance has described the proposed Budget as an austerity financial plan but yet the budget has a deficit of about K34.8 billion which he says will be financed through foreign borrowing. Foreign borrowing is not necessary, what is necessary is for government to address its inefficiencies and cut expenditure. The so much talked about austerity measures are only targeting the poor,” said Nkosi.

The budget document further indicates that interest on domestic debt will rise from the approved K25.2 billion in 2012/13 fiscal year to K30.5 billion in 2013/14. Interest on foreign debt is estimated to shoot from K3.5 billion to K5.2 billion. The document further shows that the total interest payable on foreign and domestic will shoot further to K43.5 billion in 2014/15 before falling to K40.4 billion in 2015/16.

However, in a vicious cause and effect scenario, government in the document attributes the rise in interest rate to high commercial interest rates prevailing in the country which ironically experts have blamed on government heavy borrowing.

Thus, deductively, the high interest payable on public debt is attributed to slippages in fiscal policy that has recently seen government heavily borrowing on the market, crowding out the private sector and consequently driving commercial interest rates up.

Malawi’s public debt is projected to soar to 68 percent of the Gross Domestic Product (GDP) a situation Chancellor College Economics professor Ben Kalua recently described as worrisome and that there is a recipe for trouble.

According to a recent report by Nico Asset Managers, 2013 public debt’s percentage of GDP is forecast to increase from 62 percent to 68 percent in 2013. The report warned that external debt and public debt is on the increase and efforts to finance it may see a possible increase in tax or a reduction in government spending. The report further said the International Monetary Fund called for further tightening in government spending but Malawi has missed the set target on social spending as prescribed.

But, Ministry of Finance spokesperson Nations Msowoya, responding to an e-mailed questionnaire recently, said external debt is projected to increase gradually while domestic debt is expected to decline.

Msowoya said that by the end of December 2012, Government retired domestic debt amounting to K18.6 billion which translated to a reduction of the domestic debt stock to K205 billion from K223 billion reported in June 2012. He added that as of end March 2013, the gross domestic debt rose to K242 billion.