Public debt rise worries experts

Public debt rise worries experts

Post was last updated: September 9, 2020

LOMBE—The option is embark on austerity

Industry captains and economic commentators have expressed worry over continued growing level of public debt in the country.

This comes as public debt stock surged to K4.1 trillion as at June 2020 from K3.4 trillion recorded in December 2019.

Figures presented to Parliament last week by President Lazarus Chakwera in his inaugural State of the Nation Address show that 53 percent of the debt stock is domestic.

The K4.1 trillion debt stock represents 59 percent of the nominal Gross Domestic Product (GDP).

In an interview Tuesday, Africa Institute for Corporate Citizenship (AICC) Chief Executive Officer, Felix Lombe, said the debt situation is now out of hand.

He said government’s options to recover are anchored on a gamble and a set of assumptions.

“The first option is to keep on borrowing and spend more. This is an expansionist approach and it assumes that demand will be triggered, production will go up and government will then be able to get more tax revenue. This is however, dependent on where government intends to put its resources. It’s not an easy task.

“The second option is to embark on austerity measures. This will ensure that we contain our public debt. The problem is that production may be hampered and consequently lead to reduced tax revenues,” Lombe said.

In a separate interview Malawi Economic Justice Network (Mejn) Regional Coordinator for the South, Mike Banda, rated the debt level as worrisome.

“If every penny that we mobilise domestically and from other international sources was put into proper use, we could avoid the situation.

“We only have one option and that is to take our appetite for borrowing and begging to live within our means,” Banda said.

He added that Malawi needs to broaden its tax base by creatively capturing those that are in the informal sector.

Malawi Confederation of Chambers of Commerce and Industry (MCCCI), Head Membership Development and Communication, Tione Kafumbu, also said lack of fiscal discipline has been a characteristic of the past five years.

He said this has resulted in higher fiscal deficits of more than three percent of the GDP and total public debt as high as 62.8 percent.

“In order to improve our debt position, stronger fiscal restraint is needed by the government in order to reduce domestic debt. The first step to achieve this would be to improve budget revenue assumptions, including taking into consideration the effect of shocks in projections,” Kafumbu said.

In the 2019/2020 fiscal year, government had K1.527 trillion in revenue against a total expenditure of K1.841 trillion.

He said the K315 billion deficit was financed in large part by domestic borrowing, which crowded out private sector from accessing financial resources for productive purposes.

Currently, government arrears amount to K169.4 billion originating from Ministries, Departments, and Agencies.

Figures from the World Ban show that domestic debt stock went up between 2018 and 2019 from 28.2 percent of GDP to 29.7 percent of GDP.

The International Monitory Fund (IMF) recently warned that the country is at risk of a debt distress if no swift action is taken to reverse the situation.

The IMF said public debt has increased rapidly since the country got debt relief in 2006.

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