Treasury faulted on costly loans
Money market analysts have faulted Treasury’s move to continue borrowing through Treasury notes (T-notes), saying it has the potential to burden government with high interest payments.
The sentiments come against a backdrop of Treasury’s continued issuance of T-notes, which continues to swell domestic debt currently at K2.6 trillion or 28 percent of gross domestic product (GDP).
Reserve Bank of Malawi figures contained in a Bridgepath Capital Limited report shows that Treasury’s domestic debt accrued through Treasury securities jumped by 36 percent from K838 billion in 2020 to K1.14 trillion.
The figures further show that Treasury has since the beginning of this year raised in excess of K90 billion through T-notes, debt instruments which investor loans money to entity and is issued to raise money.
In an interview on Monday, market and investment analyst Cosmas Chigwe blamed the situation on the lack of market depth, saying in the absence of investment avenues government has no choice but to borrow at a high cost.
“The government paper remains attractive instrument for investors who usually have the money and find the interest attractive thus going on to lend the government,” he said.
Malawi University of Business and Applied Sciences associate professor of economics Betchani Tchereni in an interview on Monday said the major concern is and has always been costs and terms of such loans.
“Local loans are expensive in general and their repayments are expected within relatively shorter periods. As such this forces government to dig more trenches to fill the already dug trenches,” he said.
In recent times, domestic borrowing has continued to expand through T-notes as the government has been implementing a deliberate strategy to lengthen the maturity profile of domestic debt.
This has resulted in the shift of domestic debt holdings from Treasury bills to T-notes.
In an earlier interview, Ministry of Finance spokesperson Williams Banda said the government is currently prioritising concessional loans that are cheaper and have low interest rate.
He said government is also looking at the domestic revenue mobilisation strategy, which seeks to mobilise more resources to help minimise borrowing by Treasury both from local and external sources.
In its December 2021 Malawi Economic Monitor, the World Bank warned that the consistent financing of fiscal deficits by high cost domestic borrowing has led to a recent surge in domestic debt and is expected to rise further.
A report by the Ministry of Finance’s Debt and Aid Division shows that between June 2020 and June 2021, Malawi’s total public debt stock surged 34 percent from the K4.1 trillion to K5.5 trillion.
Of the total debt stock, K2.9 trillion comprises external debt or 31 percent of GDP while K2.6 trillion or 28 percent of GDP is domestic debt.
The domestic debt stock has crossed the International Monetary Fund (IMF) recommended 20 percent domestic public debt as percentage of GDP, according to economists. IMF currently categorises Malawi as a debt distressed economy, and stresses that the country’s debt levels are so high that it may be difficult to repay the loans, if the status quo remains.
