Government domestic debt chocking the national budget through debt interest payments—Parliamentary Committee

* Public debt interest charges have continued to increase in the proposed budget indicative of the precarious debt situation in the country

* Interest payments have increased by K524.2 billion (56.3%) to K1.456 trillion in the proposed budget from K931.5 billion in 2023/24 revised budget

* They now claim about a quarter of the total budget (24.4%) which is an increase from 21.5%

* The Committee has always decried this perennial increasing trend in public debt interest which continues to constrain fiscal space

By Duncan Mlanjira

Parliamentary Committee on Budget implores the Minister of Finance & Economic Affairs to appraise the National Assembly the results of debt restructuring and debt swap negotiations with commercial and bilateral lenders.

This is contained in the Committee’s analysis of the 2024/2025 National Budget, which Finance Minister Simplex Banda presented in Parliament last month and the Committee asks for “an actionable plan for dealing with specifically domestic debt which is chocking the budget with debt interest payments”.

The Committee observed that public debt interest charges “have continued to increase in the proposed budget indicative of the precarious debt situation in the country”.

“Interest payments have increased by K524.2 billion (56.3%) to K1.456 trillion in the proposed budget from K931.5 billion in 2023/24 revised budget.

“They now claim about a quarter of the total budget (24.4%) which is an increase from 21.5%. The Committee has always decried this perennial increasing trend in public debt interest which continues to constrain fiscal space.

“This signals a need for more assertive strategies to contain debt,” said the report, adding that analysis of the composition of these interest payments reveal a domestic debt challenge which the Committee has always decried in previous budgets.

“The increase in debt charges is a net effect of a K539.2 billion increase (64.4%) in interest on domestic debt and a slight reduction in foreign debt interest charges by K15.0 billion.

“The Committee is further aware that 89.5% of the total deficit (representing 29.1% of the budget) will be financed through domestic borrowing. This situation is likely to perpetuate a vicious cycle of borrowing to finance social and development spending.

“The Committee, therefore, would like to request detailed debt management initiatives that are in place to address this situation.”

Soon after the Finance Minister presented the National Budget, Standard Bank Plc Chief Executive, Phillip Madinga also commented the public debt, saying he must reduce government’s borrowing appetite and reign in expenditure controls if the ambitious economic growth targets of 3.2%-4.8% are to be achieved by 2025.

Madinga said adherence to austerity measures and reducing public debt levels hold the keys to achieving the ambitious growth targets as set out in the government’s latest fiscal plan.

“Success of implementation of this budget, and Malawi’s economic recovery, will hinge on the boldness, courage and commitment by all stakeholders — thus private sector supporting initiatives that drive production and export generation, and on the government side, adherence to its austerity measures, reducing public debt levels and effective fiscal management and discipline,” Madinga said.

He also pointed out that the public debt interest line — which has increased by 3% of the total expenditure — must be closely monitored to ensure it remains within budget.

On the positive side, Madinga noted that the 2024/25 budget demonstrates government’s commitment to contain public debt growth as overall stock of K1.4 trillion represents a reduction by 14% and 7% as a proportion of revenue and expenditure lines, respectively.

“The overall public debt growth at K1.4 trillion as a share of total revenues and total expenditure, has reduced by 14% and 7%, respectively, year on year.

“With the positive outlook on the macros, public debt growth is expected to be contained. This will be a significant step towards achieving debt sustainability.”

Other recommendations the Parliamentary Committee on Budget made included disaster preparedness and calls for a proactive approach in anticipating and preparing for disasters.

“With the improvement in weather forecasting, the Committee expects better preparedness and increased efforts in building resilience. This would help provide better emergency services and save resources that can be utilized for other productive areas.”

The Committee also observed that in light of the newly-negotiated shelled groundnuts and soybean market there is need for efficiency in agriculture initiatives such as the mega farms initiative — which should be adequately leveraged to supply the crops in demanded volumes.

The Government was also encouraged to expedite integration of IFMIS to local Councils and HRMIS, saying the Minister should also update the Committee on whether all Government contracts, commitments and revenues are now being captured and managed through the system.

On allocation towards maize purchases, the Committee proposes that some resources from the K40 billion for ADMARC operations should be utilized to cater for maize purchases and that the K12 billion allocation towards NFRA should be revised upwards in light of the devastating effect of El Niño on maize yield and the high prices of maize.

On increased allocation towards wages and salaries, the Committee calls on the Minster to explain the extra K18.7 billion that has not been accounted for.

“Out of K94.7 billion increase, K70 billion is for salary increment and K6.0 billion is for recruitments leaving a balance of K18.7 billion.”