‘If economic growth targets of 3.2%-4.8% are to be achieved, government needs to contain appetite for debts and over spending’
Finance & Economic Affairs Minister Simplex Chithyola has his work cut out for him — 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.
This is the advice from the country’s second largest bank, Standard Bank Plc in a statement officially responding to the Finance Minister’s draft 2024/25 budget statement he presented in Parliament on Friday.
Chief Executive Phillip 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.”
The Standard Bank chief said the 2024/25 budget also addresses the need to boost foreign currency supply by proposing export strategies through mega farms, labour export, mining, tourism and enhancement of diaspora remittances.
He added that based on the enhancement of revenue collection professes, anticipated donor inflow opportunities, rationalization of expenditures and additional focus on production sector, the 2024/25 budget gives hope to a better Malawi on the road to achieving the MW2063 vision.
In his budget presentation, Finance Minister Chithyola Banda acknowledged that Malawi’s public debt is unsustainable — just as many economic analysts, including the country’s development partners have always highlighted this shortfall.
Chithyola said “the Government has been working to sustain debt through fiscal adjustment and debt restructuring negotiations with its bilateral and commercial creditors”.
“The Government remains optimistic that the talks will yield the desired results. As of December 2023, public debt stood at K12.56 trillion, representing 84.8% of GDP, of which total external debt reached K6.62 trillion, while domestic debt amounted to K5.94 trillion.
“The exchange rate realignment has exacerbated the external debt component. Aware of the risks posed by contingent liabilities that lead to the growth of debt, such as guarantees, the Government is developing a framework for managing contingent liabilities.
“This would ensure that decisions to issue guarantees are made with a sound analytical underpinning.”
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