The International Monetary Fund (IMF) has said while the rising public debt, now at K2.9 trillion, is not too surprising given primary fiscal balance deficit performance in the 2017/18 financial year, fiscal authorities should tread carefully on the recent trend of a shift of debt composition toward domestic debt.
Speaking in an interview yesterday, IMF resident representative Jack Ree observed that the trend is not good because domestic debt is far more expensive than the external debt.
He said: “As highlighted lately, 2017/18 was a difficult year in terms of fiscal management. The budget implementation suffered both spending overrun, including one caused by Admarc bailout, and revenue shortfall. The recent trend of a shift of debt composition toward domestic debt, is however, not good because in the past, domestic debt was also a driver of runaway inflation and instability of kwacha.
“However, there is no other way when a country wants to reduce indebtedness. We will need to bite the bullet and consistently implement the fiscal adjustment embedded in the Extended Credit Facility programme. Then we will see a gradual, but significant reduction of debt ratio in the years
According to a recently published Reserve Bank of Malawi (RBM) Financial and Economic Review for the first quarter for 2018, total public debt stock during the first quarter of 2018 stood at K2 900.3 billion, representing a 4.1 percent increase from a 2017 fourth quarter position of K2 786.6 billion.
On an annual basis, public debt rose by 18.7 percent from a debt stock of K2 443.1 billion recorded as at end of the first quarter in 2017.
Public external debt accounted for 52.7 percent of the public debt stock, from 53.4 recorded in the previous quarter and 51.5 percent recorded in the corresponding quarter of 2017.
Outstanding domestic debt stock in the first quarter of 2018 stood at K1 371.1 billion, representing a 5.7 percent increase from a domestic debt stock of K1 297.6 billion as was recorded by the end of the preceding quarter.
On annual basis, domestic debt has risen by 15.7 percent from its 2017 first quarter position.
In the next fiscal plan, government plans to borrow K176 billion from the domestic scene, an increase from the previous K30.7 billion in the 2017/18.
Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira said this is likely to have implications on the gains made on macroeconomic stability as well as crowd out private sector.
According to the 2018 Economic and Fiscal Policy Statement issued by the Ministry of Finance, Economic Planning and Development, in the medium term, government intends to restructure the domestic debt to ensure that there is more long-term dated debt than short term one while on foreign borrowing; government strategy will involve contracting more concessional loans from multilateral sources.
Recently, the World Bank warned African countries, including Malawi, to borrow responsibly or risk their public debts reaching unmanageable proportions from concessional to market loans.