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Debt erodes Development

Malawi is no better 10 years after accessing debt relief under the Enhanced Heavily Indebted Poor Countries (Hipc) Initiative in 2006 and economic analysts say failure to properly manage resources which could have gone towards debt repayment has contributed to rising poverty levels in the country.

In September of 2006, Malawi reached the Hipc completion point and received an equivalent of $3.1 billion in total nominal debt relief under the Hipc Initiative. The achievement of the Hipc completion for Malawi meant that the resources which the government was using to service foreign debt were available to government to use in order to alleviate the suffering and poverty among the masses.

But according to the latest International Monetary Fund (IMF) Debt Sustainability Report, Malawi’s public and publicly guaranteed external debt had risen to about $1.78 billion or 37.0 percent of its Gross Domestic Product (GDP) in 2015, compared to $1.45 billion or 30.8 percent of GDP in 2013.

And when asked to comment on whether debt relief has managed to bring the much needed fiscal relief to Malawi, Chancellor College Economics professor, Ben Kaluwa, said the country has failed to maximise opportunities created by debt relief.

Kaluwa said from 2006, when Malawi received debt relief, it has failed to channel the financial resources from debt relief towards diversification of the economy. He observed that Malawi needed to invest in the necessary infrastructure that could have turned the country to a predominantly producing and exporting country from predominantly being importing and consuming.

“We are still relying on tobacco to drive the economy ten years after receiving debt relief. The story would have been different had we properly managed resources that were meant to go toward repayment of the debt,” Kalua said.

“Malawi Economic Justice Network (Mejn) Executive Director, Dalitso Kubalasa, whose organisation was in the forefront pushing for debt relief back in 2006 observed that Malawi is no better than the pre-debt relief era.

Kubalasa said the licence to borrow, provided after debt relief, has seen Malawi borrowing more for consumption rather than production.

According to Kubalasa, Malawi now has found herself in a situation where it has to cough K143 billion in debt repayment this year.

Finance Minister, Goodall Gondwe, asked for more time to comment on the issue yesterday as he indicated that he was travelling back into the country from Tanzania.

But Gondwe was quoted in the local media early this year as saying that Malawi has made a lot of infrastructure investments in the aftermath of debt relief.

He further said Malawi has not over borrowed since Hipc because by that time, total borrowing as a ratio of GDP was around 160 percent but is much lower now as a ratio of the national economy.

In its Debt Sustainability Analysis Report, the IMF says Malawi remains at moderate risk of debt distress, based on an assessment of external public debt, but heightened overall risks remain, reflecting vulnerabilities to domestic debt and external conditions.

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