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First Merchant Bank (FMB) has said that while receipt of World Bank funds amounting to K4.28 billion (US$40) may result in marginal reduction in the Malawi Governments’ domestic debt stock, the gains in this area will be largely cancelled out by the increase in debt occasioned by the interest burden on existing debt stock.
FMB said in an Economic Review report dated January 2, 2004 that it also remains to be seen how much of the US$40 million, if received, could be made available to the private sector.
“One scenario is that most of these funds will be required to restore official reserves to agreed targets ahead of the IMF review mission due in Malawi in February 2004,” said the report made available to Nation Online.
After Malawi returned to an economic programme with the IMF last October, it was expected that a structural adjustment facility would have been agreed with the World Bank during December 2003 and the first trance of US$40 million disbursed around this time.
But, FMB said, discussions on the facility were postponed until this month which, if successfully concluded, will result in this disbursement occurring in late January.
“There is reason for optimism as most major conditionalities, including legislation providing for the commercialisation of Admarc, appear to have been met,” said the bank.
The bank said the total amount ‘at stake’ for Malawi in the first half of 2004 is around K8.4 billion (US$80 million) i.e. K4.28 billion (US$40 million) from IMF and another K4.28 billion (US$40 million) from bilateral donors.
FMB said if this money is not disbursed, there will be an upward spiral of domestic debt stock which was pegged at K50 billion resulting in “a serious pressure on the kwacha exchange rate which monetary authorities will be ill-resourced to defend.”
Said FMB: “We anticipate the currency will remain under sustained pressure at least through to end February 2004 and, if further balance of payments support is not forthcoming, this could continue through until the peak tobacco selling season.”
Reacting to the Reserve Bank of Malawi’s the five percentage points cut in the bank rate from 45 to 40 and then 35 percent, FMB said interest rates remain high in real terms and it is unlikely that there will be any dramatic reduction in the near future in domestic borrowing by government for further downward movement in interest rates.,
First Merchant Bank (FMB) has said that while receipt of World Bank funds amounting to K4.28 billion (US$40) may result in marginal reduction in the Malawi Governments’ domestic debt stock, the gains in this area will be largely cancelled out by the increase in debt occasioned by the interest burden on existing debt stock.
FMB said in an Economic Review report dated January 2, 2004 that it also remains to be seen how much of the US$40 million, if received, could be made available to the private sector.
“One scenario is that most of these funds will be required to restore official reserves to agreed targets ahead of the IMF review mission due in Malawi in February 2004,” said the report made available to Nation Online.
After Malawi returned to an economic programme with the IMF last October, it was expected that a structural adjustment facility would have been agreed with the World Bank during December 2003 and the first trance of US$40 million disbursed around this time.
But, FMB said, discussions on the facility were postponed until this month which, if successfully concluded, will result in this disbursement occurring in late January.
“There is reason for optimism as most major conditionalities, including legislation providing for the commercialisation of Admarc, appear to have been met,” said the bank.
The bank said the total amount ‘at stake’ for Malawi in the first half of 2004 is around K8.4 billion (US$80 million) i.e. K4.28 billion (US$40 million) from IMF and another K4.28 billion (US$40 million) from bilateral donors.
FMB said if this money is not disbursed, there will be an upward spiral of domestic debt stock which was pegged at K50 billion resulting in “a serious pressure on the kwacha exchange rate which monetary authorities will be ill-resourced to defend.”
Said FMB: “We anticipate the currency will remain under sustained pressure at least through to end February 2004 and, if further balance of payments support is not forthcoming, this could continue through until the peak tobacco selling season.”
Reacting to the Reserve Bank of Malawi’s the five percentage points cut in the bank rate from 45 to 40 and then 35 percent, FMB said interest rates remain high in real terms and it is unlikely that there will be any dramatic reduction in the near future in domestic borrowing by government for further downward movement in interest rates.
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