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Debt-to-GDP ratio surge projected

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Lauryn Nyasulu

Economic expert Donasius Pathera has projected that the country’s debt-to-gross domestic product (GDP)- ratio would rise to 75.1 percent in 2022 due to continued macroeconomic imbalances.

This came out during a mid-year budget analysis workshop organised by the Economics Association of Malawi (Ecama) on Thursday in Lilongwe.

Pathera said, before the Covid pandemic, debt-to- GDP ratio was already high at 63 percent, above the 60 percent threshold.

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“Lower government revenues due to lower economic output and increased expenditure due to higher compensation of employees and social benefits will negatively impact debt levels.

“The debt-to-GDP ratio is expected to widen to 70.7 percent in 2020 and to peak at 75.1 percent by 2022. The debt to GDP ratio is expected to decline thereafter as GDP expands to pre-Covid levels,” Pathera warned.

One of the panellists, who is also Oxfam Governance Programme Manager Mathias Kafunda faulted the government for policy inconsistencies in debt management.

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“We need to interrogate these issues further to make sure that we are not choking the fiscal space because with domestic debt the private sector has been put on hold because government has taken their space to borrow from commercial banks,” Kafunda said.

Ecama President Lauryn Nyasulu said the budget has fallen short of fiscal consolidation.

“The deficit is being projected to widen further due to projected increase in expenditure. Covid is highlighted as one of the major risks. Currently, the government is already servicing huge interest payments and debt restructuring is recommended,” Nyasulu said.

Presenting the Mid- year Budget Statement in Parliament recently, Finance Minister Felix Mlusu said in order to start repaying this huge debt and reduce it to sustainable levels, the government was at an advanced stage in establishing the Debt Retirement Fund.

“Ministry of Finance has completed the identification and quantification of the possible sources of finance into the Fund. Implementation of this Fund is expected to be approved by Cabinet in time for its operationalisation on July 1 2021,” Mlusu said.

Currently the country’s debt stock stands at over K4 billion.

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