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Debt advisers tell Malawi to default

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Farayi Gwenhamo

Finance Minister Sosten Gwengwe Tuesday disclosed that the government considered the advice of French firm, Global Sovereign Advisory (GSA), to default on loan obligations with regional banks too risky and dangerous for Malawi.

Gwengwe said this Tuesday when responding to a question from The Daily Times on why Malawi continues to have issues with the International Monetary Fund (IMF) regarding debt management when the country hired French debt advisers to help Capital Hill on specifically the same task.

According to Gwengwe, Malawi could not risk going the default route as the cross-default clauses would impact pretty much the whole economy and that nobody would be able to borrow again.

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“Yes, the debt advisers came in, they knew what they were up to and, yes indeed, we looked at this aspect of defaulting on regional banks and we considered it too dangerous for Malawi; too risky for our economy and it’s an area that we really can’t go into.

“We need to find other ways of dealing with the same problem. And that’s where a bone of contention has really been, that how else would you be able to bring yourself to levels of sustainability without taking some drastic measures of defaults and the like,” Gwengwe said.

He observed that Malawi has never defaulted on loans, adding that the country is able to have the confidence of all the lenders because they know that if they lend to government, they are sure of getting back the money.

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On the issue of negotiations with the IMF for a new Extended Credit Facility (ECF) programme, he said they were on course and that the Bretton Woods institution has asked Malawi to restructure its debt to allow for a Staff Level Agreement with the fund.

The development comes as Malawi’s total public debt stands at K5.8 trillion, representing 56.8 percent of gross domestic product.

Briefing reporters in Lilongwe, Gwengwe said the IMF Mission team was expected in the country for ECF negotiations from Monday this week but that the talks have been pushed forward as the Treasury requested the mission to get all the necessary approvals from the fund to reach a Staff Level Agreement with Malawi after the talks.

According to Gwengwe, Malawi and IMF have agreed on most of the ECF programme structures and components, except the thorny issue of debt sustainability.

He said Malawi’s public debt is being classified as being unsustainable due to the country’s limited capacity to service the current level of debt.

“We, as a country, are therefore asked by the IMF to restructure our debt to sustainable levels to within the IMF acceptable thresholds through debt treatment or debt restructuring.

“Substantial progress has been made, nonetheless. We have been engaging our creditors to restructure our debts to sustainable levels and our development partners for non-debt creating instruments that could help us close the financing gap and at the same time inject some liquidity in the economy,” Gwengwe said.

He observed that government will continue to work closely with stakeholders such as its creditors, development partners and the IMF for a balanced progressive solution.

“This process means working with our creditors,” Gwengwe said.

IMF Managing Director Kristalina Georgieva said at the weekend that a country like Malawi, with no fuel and food yet with unsustainable debt, is difficult to enter for the fund.

IMF Resident Representative Farayi Gwenhamo told The Daily Times on Monday that the Bretton Woods institution will only be engaging the local authorities on mapping the way forward.

“We had some discussions, online, last week, and we were supposed to continue this week with the in-person part of the mission. But now this is on hold. We had to reach a resolution around the debt sustainability issues,” Gwenhamo said.

She said regarding the misreporting case, the IMF received an audit report which the fund’s experts are still scrutinising.

“We received that information (the audit) and now we are processing it and discussing with the authorities on collective measures to prevent such things from happening again and, at some point, we will have to present the case to the IMF board, putting together the audit and the measures agreed upon,” Gwenhamo said.

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