The Budget and Finance Committee of Parliament has underscored the need for Parliament to be scrutinising and approving sovereign guarantees as one way of containing growing public debt.
Budget and Finance Committee Chairperson Gladys Ganda was speaking during a panel discussion in Mangochi on Friday during the Financial Services Lawyers Forum/ RBM-MLS Conference on Sovereign Debt.
A sovereign guarantee is a promise given by a government to a project lender that if certain events, which have led to a substantial deterioration of the creditworthiness of the institution promoted by the government, do or do not occur, the government will compensate the project lender.
It could be described as a ‘standard’ financial guarantee, which is distinguished by being issued by a government body, not private institutions
Currently, sovereign guarantees are agreed at Cabinet level and the Finance Minister is supposed to inform Parliament on the agreed guarantees issued.
- Advertisement -
But Ganda said sovereign guarantees are potential debt to the government in the event of the firm failing to deliver on its task.
“As such, the sovereign guarantees must be approved by Parliament,” Ganda said.
In recent years, the government has issued a number of sovereign guarantees to a number of players including East Bridge and Quay Energy Corp.
During the meeting, Attorney General Thabo Chakaka Nyirenda said financial lawyers have a critical role to play in ensuring that the country’s sovereign debt is sustainable.
- Advertisement -
- Advertisement -
Despite receiving debt relief under the Hipc Initiative in 2006, Malawi quickly accumulated new debt and has now reportedly reached debt distress, thereby causing economic downturn.
As at December 2022, Malawi’s public debt hovered around K7.9 trillion.
According to Nyirenda, loan agreements are legal instruments and because sovereign borrowing gets its source from the constitutional and statutory instruments, lawyers play a very crucial role in responsible sovereign borrowing.
“Lawyers play a very important role in sovereign debts. They are the ones who advise on and draft the pari passu, negative pledge, maturity, currency, interest rate, the confidential clauses and cross-default clauses. They draft pledges and guarantees.
“We need to sincerely interrogate the role of lawyers in this country in ensuring sustainable public debt management for the development of our country,” Nyirenda said.
