Government to start contracting debt

Post was last updated: May 15, 2018

The government is working on plans to start contracting debt for purposes of refinancing outstanding liabilities, developing the domestic debt market and pursuing monetary policy objectives.

The development is aimed at addressing challenges in domestic debt upon implementation of the 20118/19 Financial Budget.

Debt contract, according to Bizfluent, is an agreement in which you agree to repay funds to a lender. For example, in a mortgage transaction, you agree to make monthly payments to a bank. In a short-term debt contract, one repays the loan within 12 months. The maturity of a long-term debt contract exceeds a year.

Malawi’s appetite for borrowing has attracted several criticisms from different stakeholders.

An Economic and Fiscal Policy Statement for 2018, published by the Ministry of Finance, Economic Planning and Development, states that the main purpose of government borrowing is to finance fiscal deficit in a particular year emanating from both recurrent and development expenditures.

The statement says the government will aim at improving the management of both external and domestic debt by ensuring that the financing needs and debt payment obligations are met adequately and at the lowest possible cost and with reasonable level of risk.

“In the pursuance of these policy objectives, the government will endeavour to adhere to the principles of prudent fiscal management as outlined in the Public Finance Management Act (2003) and in line with best practices of sovereign debt management. In the past years, the main challenge faced was high interest cost, especially on account of domestic debt.

“In the medium term, the government intends to restructure the domestic debt to ensure that there is more long-term dated debt than short-term one. This will ease the burden of debt service on budget execution that is currently being experienced,” reads the statement in part.

The statement further says, to show its commitment, the government will develop annual borrowing plan and a domestic debt issuance calendar concurrently with the budget preparation process.

“Wherever possible, government will ensure that long-term investments are prioritised for financing as this is the source for sustainable economic growth,” the statement says.

On foreign borrowing, the government strategy will involve contracting more concessional loans from multilateral sources.

Recently, Institute of Chartered Accountants in Malawi Chairperson for Taxation and Economic Issues Committee, Andrew Chioko, said the government should control expenditure by spending based on revenue collected while maintaining equitable collection from taxpayers that is free from harassment and bloated assessment estimates.

Chioko also said the government should set realistic tax collection targets.

He further observed that there is need for infrastructure development, especially in the electricity and water sectors.

Malawi Economic Justice Network Executive Director, Dalitso Kubalasa, said both domestic and foreign debt levels were rising at unprecedented levels, which is worrisome.

“We always highlight that it is not a crime to borrow, but we always need to watch what we are borrowing for and how we are using the debt accruing. And that has been a problem for Malawi,” Kubalasa said.

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