High debt levels worry Reserve Bank of Malawi chief

post was last updated: July 22, 2019

By Taonga Sabola:

Reserve Bank of Malawi (RBM) Governor, Dalitso Kabambe, has said he is worried with the country’s elevated domestic debt levels which stand at 30 percent of Gross Domestic Product (GDP).

Speaking on the sidelines of a cocktail party hosted in honour of visiting Africa Export-Import Bank (Afreximbank) President Benedict Oramah in Lilongwe on Thursday night, Kabambe said domestic debt stands at 10 percentage points above international benchmarks.

Malawi’s central government debt stock rose by K177.4 billion in the fourth quarter of 2018, from K3.1 trillion in the third quarter to K3.3 trillion, triggered by an upsurge in domestic and foreign debt.

External debt stock was recorded at $2.1 billion, or 29 percent of GDP, representing an increase of $38.6 million from the stock recorded during the third preceding quarter.

Domestic debt stock increased by 11.8 percent from K1.6 trillion in the third quarter to K1.7 trillion or 32.3 percent of GDP.

“We have been having discussions with the new minister of finance and we have been assured that, as they craft the next budget, one of the centrepieces of that budget would be to rein in on how we can begin to deal with domestic debt.

“As you are aware, domestic debt is currently at 30 percent and normally domestic debt is supposed to be at 20 percent in terms of international benchmarks. So it is quite on the higher side and that’s an area which, in my understanding, the new minister would focus on in the next budget which would be presented around September,” Kabambe said.

He added that foreign debt levels were also worrying as they stood at 30 percent, which is just in line with international benchmarks.

“It means there isn’t sufficient room anymore for public sector borrowing in terms of foreign debt; so, it’s again another area which needs to be looked at cautiously because any further borrowing in that area will mean heavy repayments in terms of foreign exchange outside the country,” Kabambe said.

In its First Quarter Economic Report, the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) says the rise in public debt continues to be a threat to economic gains emanating from the stable macroeconomic fundamentals the country has experienced for the past two years.

“In addition, the rise in public domestic borrowing continues to threaten private sector development, and that of the economy as a whole, as it has the potential to crowd out financial resources that could have been used for productive purposes,” MCCCI said.

Speaking early this month when he received a $40 million disaster risk management package from the World Bank, Finance Minister Joseph Mwanamvekha said government was committed to reducing debt levels.

Let us know what you think of this update and remember to add us on our facebook and follow us on our twitter. Make sure to come back daily for more Malawi business news updates.

Quick Links: Malawi Banking News | Malawi Technology News | Download Business eBooks | Ten Signs You Are An Entrepreneur | What is a Managing Director?

Today’s top business story: Top Commercial Banks In Malawi

Source link