Fuelling Malawi’s Growth: Economists Weigh in on Strategic Borrowing Plans

Key Business Points

• Fiscal discipline is crucial for Malawi’s economic growth, and the government must stick to its annual borrowing plan to minimize the risk of negatively affecting the target to reduce the fiscal deficit projected at 9.5 percent of the country’s GDP.
• Excessive borrowing can suffocate the economy, increase debt levels, and put future generations in "shackles of loans," making it essential for the government to adhere to the borrowing plan in line with Section 72 of the Public Finance Management Act.
• Private sector credit opportunities are being crowded out due to the elevated domestic public debt, which pushes up interest rates and motivates banks to lend more to the government, ultimately hindering economic growth and zithandizi za mphelo (credit opportunities) for businesses.

Malawi’s economists are urging the Treasury to exercise fiscal prudence and stick to its annual borrowing plan to avoid negatively impacting the government’s target to reduce the fiscal deficit. The Reserve Bank of Malawi’s data shows that the government has borrowed K2.19 trillion on the domestic market in the first five months of the fiscal year, representing 94 percent of the planned K2.33 trillion borrowing. This surge in borrowing, particularly prior to the September 16 General Election, has raised concerns among economists, who warn that excessive borrowing can kulimba mtundu (suffocate) the economy.

The Tsogolo kulikonse (future generations) will bear the burden of this debt, as future production efforts will mainly be focused on repaying the loans, according to University of Malawi associate professor of economics Gowokani Chijere Chirwa. Finance expert Brian Kampanje emphasizing the need for the government to adhere to the borrowing plan, warned that extra expenditures outside the budget could lead to a higher than anticipated deficit. The elevated domestic public debt is also pushing up interest rates, making it challenging for the private sector to access credit, and ultimately hindering mphelo ya zana (economic growth).

The Economics Association of Malawi president Bertha Bangara-Chikadza expressed concern over the continued budget deficit, which highlights the challenges the government faces in fulfilling its mandate. The ministry of Finance and Economic Affairs data shows that Malawi’s total public debt stock stands at K16.19 trillion or 86.4 percent of projected GDP. As the government prepares to close the fiscal year with a fiscal deficit of K2.47 trillion or 9.5 percent of GDP, it is essential for the Treasury to exercise fiscal discipline and prioritize dziko lathu (our country’s) economic growth. By doing so, the government can ensure that the private sector has access to zithandizi za mphelo (credit opportunities) and create a conducive environment for businesses to thrive.

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