By Deogratias Mmana:
Secretary to the Treasury McDonald Mafuta Mwale Tuesday confessed that the country cannot spur any development in the face of the huge debt it has.
Mwale said the government is paying K915 billion interest in the current national budget on the resources borrowed in past years.
He also said the government is forced to settle arrears dating 2008.
As at December 2022, the country’s debt was at K7.9 trillion.
Mwale said this when he addressed a national conference on debt and development organised by the Malawi Economic Justice Network in collaboration with African Forum and Network on Debt and Development (Afrodad).
“The rising debt stock is one of, if not the major challenge, [challenges] that this country has to deal with if we have to achieve meaningful development.
“In fact, the country is unable to efficiently finance its social obligations on account of the unsustainable debt,” Mwale said.
He said due to the debt, the country is also unable to finance the implementation of Malawi Implementation Plan (MIP)-1 of Malawi (MW) 2063 aspirations.
“You cannot talk about implementation of MIP-1 without talking about restoration of debt sustainability,” Mwale said, adding “how can we develop with this debt?”
What has led to the country’s debt?
According to Mwale, the country’s debt journey dates back to 2006, when it achieved a debt to gross domestic product (GDP) ratio of 15 percent following the Multilateral Debt Relief Initiative and Heavily Indebted Poor Country (HIPC) Initiative.
And in 2009, the debt to GDP ratio moved to 29 percent, and further to 41 percent in 2014, largely because debt replaced withdrawn donor support after Cashgate— the plunder of public resources at Capital Hill— and in 2019 the ratio moved to 45 percent on account of the borrowing to support the exchange rate.
As of December 2022, the ratio was about 60 percent largely because of the snowballing effect and arrears using promissory notes, a worrying trend which reduces the fiscal space for government operations.
Mwale added that the total debt stock stood at 64 percent of the country’s GDP at the end of 2021, with external debt recorded at 33 percent of GDP.
“In the approved budget of K2.6 trillion in revenue, about K915 billion is allocated to pay interest on the country’s debt stock. Thus, 35 percent of revenues in the budget are allocated to pay interest on the resources we borrowed in years gone.
“The amount allocated to interest bill alone is close to four times the amount allocated to the domestically financed development expenditure, at K231 billion, and it is greater than a combined amount of resources allocated to the education and health sectors. How can we develop?” Mwale said.
Mwale added that the government is also haunted by arrears and has made a decision to pay what falls due because any default has serious implications as it raises the risk profile of the economy, with consequences extended to banks and private sector.
He also said the government is now faced with maturing promissory notes when the economic growth and revenue collection are subdued because of the many shocks the country has gone through.
“This implies that, as the promissory notes mature, government has to borrow to redeem them, thereby creating more debt,” he said.
Government initiatives
According to Mwale, the government has come up with initiatives to manage the debt. These include debt restructuring; implementation of commitment controls and enforcement of the Public Finance Management Act 2022 to ensure that all government controlling officers do not commit resources beyond the appropriated amounts.
Government is also extending the tax base to engage domestic revenue collection, apart from reviewing tax incentive schemes and waiver and system automation and digitisation.
The government is also maximising grants and other non-debt creating flows from bilateral and multilateral and other philanthropic organisations.
Mwale said the government is also diversifying the economy to stop over reliance on smallholder agriculture and move to other investments like mega farms.
Government demands to CSOs
The government has asked CSOs to step up their campaign for debt treatment and relief for poor countries like Malawi, especially because Malawi’s debt distress has been driven by external forces like climate shocks and geopolitical forces, according to Mwale.
The CSOs are also urged to help the government in sensitising the populace to issues related to the importance of paying tax.
“Let people be angry with a trader who deliberately chooses not to give a receipt,” Mwale said.
Mejn Board Chairperson Bishop Martin Mtumbuka urged the government to exercise fiscal prudence and avoid diverting funds meant for projects to other uses.
“Dr. Mwale, the problem needs a solution. You are quite capable, with your friends at the Ministry of Finance, of doing something about this,” Mtumbuka said.
