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Experts tip government on debt management

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Nyasulu

Economic experts have reiterated the need for the Treasury to cut on investments towards unproductive avenues, enhance prudent fiscal policies and ensure transparency and efficiency in public debt management if Malawi is to avoid getting to a level of debt distress.

This follows revelations by the World Bank that the debt burden of Least Developed Countries (LDCs), Malawi inclusive, rose to a record $744 billion in 2019.

A statement issued by the Bretton Woods’ institution indicates that total external debt of Debt Service Suspension Initiative (DSSI) eligible countries climbed by 9.5 percent to a record $744 billion in 2019 from the previous year, highlighting an urgent need for creditors and borrowers alike to collaborate to stave off the growing risk of sovereign-debt crises triggered by the Covid-19 pandemic.

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The pace of debt accumulation for these countries was nearly twice the rate of other low and middle-income countries in 2019.

“The debt stock of DSSI-eligible countries to official bilateral creditors, composed by mostly G-20 countries, reached $178 billion in 2019 and accounted for 17 percent of long-term net debt flows to low and middle-income countries,” reads the statement in part.

In an interview Tuesday, Economics Association of Malawi (Ecama) president, Lauryn Nyasulu, said the debt burden will inevitably be felt in the economy.

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“What is critical is how the government is going to manage this debt. It is absolutely important to avoid undue accumulation of debt. It may also be necessary to restructure some of the debt in order to effectively manage the impacts of Covid-19 in the short term.

“The reforms agenda currently being championed by the government are critical to prudent fiscal policy. The resources saved in this process due to improved efficiency may go a long way in improving the welfare of the people. Government will also need to continue curbing unproductive investments and focus more on inclusive economic recovery,” Nasulu said.

In a separate interview, UK-based economist, Sane Zuka, said already, both the World Bank and International Monetary Fund (IMF), have called on governments in Africa to be transparent in management of the public finances.

“This requires that the government clearly spell out how much debt stock they have accumulated as well as the specific creditors holding the loans. There is recognition that in the recent past, governments in Africa have widened their sources of loans from the traditional sources such as the World Bank and IMF towards non-Paris Club bilateral leaders, commercial external sources and private banks.

“Loans from non-traditional credit lending institutions do not only attract higher interest rates, but are difficult to coordinate for cancellation or reach alternative resolutions. There is thus a need to rethink about the structure of the country’s public debt and avoid increasing the country’s debt burden,” Zuka said.

Among countries which received HIPC relief in 2006, Malawi has registered the fastest pace of debt accumulation, doubling from 26.7 percent of Gross Domestic Products (GDP) in 2007 to 54.3 percent of GDP in 2017.

According to the IMF, gross domestic debt for Malawi increased from 13.8 percent to about 21.6 percent of total debt between 2014 and 2017, with China remaining at around 13 percent.

Recently President Lazarus Chakwera made a call for debt cancellation at the United Nations Conference in line with global calls to assist poor countries cope with the Covid-19 pandemic.

Currently the country has a debt stock of over K4.1 trillion.

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