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| Business |
| Govt debt cuts growth—banks |
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by
Ephraim Munthali, 16 April 2003
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10:35:22
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Bankers have warned that continued heavy domestic borrowing by government will negatively affect growth prospects for the economy.
The banker’s forecast is a challenge for the Ministry of Economic Planning and Development (EP&D;), which has drawn an ambitious growth strategy that is targeting six percent economic growth per year in the short term.
EP&D;, however, admits in the growth strategy that government’s huge appetite for money is one of the four identified factors that are slowing down growth.
The other crosscutting constraints are: weaknesses in the legal and regulatory framework; weaknesses in infrastructure that support the economy and poor dialogue and cooperation between private and public sectors.
Loita, in its latest market analysis report notes that the increased appetite for financial resources by government has inevitably crowded out the private sector as it has brought in high cost of borrowing and made financial resources scarce.
In January this year, government collected K3.25 billion but spent K7.97 billion, creating a budget deficit of K4.72 billion which was financed by floating Treasury Bills (TBs) at high interests to attract bidders.
The bulk of the budgetary expenditures consisted of domestic debt repayment and servicing, a scenario, analysts say is a reflection of government’s heavy domestic borrowing.
In an interview yesterday, EP&D; principal secretary Milton Kutengule said government is working on strategies to combat the problem of domestic borrowing.
Kutengule could not, however, answer as to whether this can affect the country’s future growth prospects, only saying: “There is no economy that doesn’t have problems [and] all we need is to find solutions.”
But analysts have in the recent months viewed statements by government to cut spending as mere political rhetoric.
Commercial Bank of Malawi (CBM) said in its economic report on Monday that issuing of TBs is creating a huge internal debt stock for government.
“Unless the debt problem haunting the government is dealt with via expenditure rationalisation, there is little hope that, in the short term, interest rates will be falling,” said CBM.
The financial market has of late been dominated by floating of TBs, currently showing a reversal of the downward trend in yield rates the market managed to record during the past two months.
At the beginning of January, yield rates on the 91-day tenor TBs was at 36.3 percent while on the 182 and 273-days tenor were at 37.20 percent and 38.58 percent respectively.
But at the auction held on March 28, the average yield on the 91-days tenor was at 37.20 percent while rates on the 182 and 273-day T-Bills were at 38.81 percent and 39.40 respectively.
“The development is unfortunate, as it will likely translate into subdued future growth prospects for the economy,” said Loita.
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