The World Bank has reiterated that chances for Malawi’s economic recovery and sustainable growth rest on the authorities’ ability to work out the prevalent macroeconomic imbalances.
The Britton Woods institution— which in its recently published Malawi Economic Monitor projected that the economy would pick up to 3 percent in 2022—fears that, if the imbalances are not urgently and decisively addressed, they could erode the strides to recovery.
“Even this modest growth rate is at risk from shocks emanating from macroeconomic imbalances,” warns the global lender.
The World Bank has cited souring public debt among the major threats, which it says, if it continues to surge, will push up interest rates, thereby reducing the ability of the private sector to invest in diversification.
Total public debt stock went up by 32 percent to K5.5 trillion as at mid this year, representing 59 percent of gross domestic product (GDP).
Of the debt stock reported, $3.6 billion (about K2.9 trillion) or 31 percent of GDP was external debt and K2.6 trillion or 28 percent of GDP was domestic debt.
This is emanating from high fiscal deficits which, according to the World Bank, are expected to continue, “which will only worsen this condition”.
Recent figures show that, of the yawning K718.3 billion estimated deficit for the nine-month 2021- 22 National Budget, the Treasury posted a K202.5 billion deficit within the first four months of the financial year.
Malawi is not only grappling to balance is fiscal space as, on the other side limited foreign exchange remains increasingly a key constraint to the private sector.
Scarce foreign exchange is being prioritised for goods such as fuel and fertilizer, thereby subsidising consumption.
“Significant and increasing commercial borrowing to bolster the exchange rate increases the risks of a stop of external financing, which would have adverse implications on growth and macroeconomic stability,” worries the World Bank.
It says both issues heighten concerns about the sustainability of debt and increase the dependency on external financing.
It says greater exchange rate flexibility can additionally help reduce the current account deficit, support competitiveness and rebuild reserves.
The local unit, the Kwacha, has remained relatively stable in Authorised Dealer Banks, hovering at around K825 to the dollar, despite the country having very thin reserves to support the exchange rate.
Speaking during one of the budget consultation meetings last week, Finance Minister Felix Mlusu said he was aware of the prevailing challenges facing the economy but the government was working towards addressing the bottlenecks.
On public debt management for example, Mlusu said the government was operationalising the Debt Retirement Fund to reduce the debt burden.
He said, to reduce the huge budget deficit, the government recently unveiled the Domestic Revenue Mobilisation Strategy, which seeks to boost revenue mobilisation which will enable the government to cut reliance on domestic borrowing.