Public debt could swell to K15tn

Public debt could swell to K15tn

Ministry of Finance and Economic Affairs says public debt hit K13.1 trillion in December 2023, consuming half of tax revenue for annual repayment costs, but experts project the debt stock could rise to K15 trillion this fiscal year.

The ministry’s deputy director of Debt and Aid Richard Kaudzu presented figures in Lilongwe yesterday during a dissemination of a  Centre for Social Concern (CfSC) report on a debt sustainability study.

RMB head office

The figures show that out of the K13.1 trillion debt, which is 85 percent of the country’s GDP, external debt accounted for $4.2 billion (about K7 trillion) while domestic debt was at K6.1 trillion, with the economy estimated to be K15.4 trillion.

The reported total public debt was based on that month’s exchange rate of  K1 683.4 to the United States dollar. The exchange rate has since risen to K1 751 to a dollar, which puts that debt stock at K7.3 trillion.

Additionally, that total debt stock did not factor in this year’s planned borrowing of K2.87 trillion, out of which over K1.8 trillion is long-term and K965 billion are Treasury bills to be repaid within the fiscal year they are contracted.

However, Kaudzu did not rule out the public debt hitting K15 trillion at the end of the current fiscal year.

“Of course, part of the current debt stock will be repaid as budgeted for but we are indeed going to borrow more this year. We will see the net borrowing at the end of the year,” he said.

Kaudzu attributed the situation to failure by the country to diversify the economy to generate more forex and revenue, saying the situation would continue to worsen if the status quo on economic productivity remained.

On his part, CfSC consultant Lesley Mkandawire described the debt status as dire, given what Treasury had presented and the debt outlook this year.

He said factoring in the declaration of a State of Disaster in 23 districts after the budget had already been framed promises even more borrowing than was initially budgeted for.

Said Mkandawire: “The most important thing to look at is the dollar figure (foreign debt) because sometimes we’re comforting ourselves with the fact that foreign debt is not rising as much as the domestic debt.

“But what is happening is that we pay back our foreign debt by buying the dollars using the kwacha which affects exchange rate.”

The consultant added that the exchange rate performance is not helping the situation, risking the country to rapid foreign debt swelling.

He projected: “Even the future exchange rate gets affected. As a result the budget pressure is on the kwacha. Going forward, unless something happens, the budget is still going to suffer. Even what they had agreed in the budget is not going to work.”

Under the 2022 Public Finance Management Act, the Treasury is obligated to release Annual Borrowing Plan (ABP) for the next fiscal year.

The first ABP entails the expected K2.78 trillion borrowing. Out of this, K288.78 billion is external, K965 billion is through short-term Treasury bills. Treasury notes, which are debt instruments with a minimum two-year repayment period include K459 billion for two years, K447 billion for three years, K349 billion for five years, K244.6 billion for seven years, and K129.7 billion for 10 years.

However, in his presentation on the Debt Sustainability report, Mkandawire observed that part of the public debt pressure is due to conversion of Treasury bills into Treasury notes.

This means instead of paying off short-term debts that are in form of Treasury bills which ought to sustain liquidity at the Treasury within a fiscal year as overdrafts, and are supposed to be paid off before the fiscal year ends, government simply converts the unpaid Treasury bills into loans to elongate the repayment period, practically turning them into domestic debt.

He also said at a time the economy is facing serious economic shocks that affect its performance and revenue collection, government is increasingly using debt as a means of raising funds to catch up with the needs, avoiding to raise taxes that would cause political backlash.

CfCS executive director Father James Ngahy has since urged government to use borrowed resources for investments that add value to the economy in order to reduce the pressure.

He noted that the country has little to show for the debt that was contracted yet the pressure is on Malawians to pay the burden of repaying the debt and the economy is not yielding to reduce poverty and provide economic opportunities.

The post Public debt could swell to K15tn first appeared on Nation Online.

The post Public debt could swell to K15tn appeared first on Nation Online.