World Bank country economist Priscilla Kandoole has cautioned on the shifting trends in domestic financing which has seen the composition of domestic financing shifting from the Reserve Bank of Malawi (RBM) to commercial banks and non-bank sectors.
She observed that while net credit from RBM substantially declined in 2018, thereby supporting the achievement of broader macroeconomic stability, government borrowing from commercial banks and the non-bank sector (which includes pension funds, insurance and discount houses) has increased significantly.
“Although the latter form of financing is less inflationary than RBM financing, the move to the market risks an increase in interest rates and has the potential to crowd out private sector investment. Over the year, lending to the private sector has continued to stagnate.
“The high interest rates and short-term maturity profile for domestic debt results in a high cost of debt service. This reduces the government’s space for expenditure on social and productive sectors,” she said.
Earlier, businesses had continued to decry government’s continued borrowing, which they said was creating competition for funds for businesses, at a time production levels are dwindling due to reduced power generation.
Access to finance, according to the Malawi Confederation of Chambers of Commerce and Industry (MCCCI), remains one of the major obstacles to doing business in Malawi.