The International Monetary Fund (IMF) has urged countries in the sub- Saharan African region to rejig the policy framework on debt management towards rebuilding buffers and preserving the sustainability of public finances.
This comes as debt in most countries within the region has risen beyond sustainable levels.
In Malawi for instance, total public debt stock rose by 38 percent from K6.84 trillion, or 63 percent of gross domestic product (GDP), as at the end of March 2022 to K9.4 trillion or 75 percent of GDP in March 2023 according to the Annual Public Debt Report by Ministry of Finance.
Out of the total public debt stock, external debt was seen at $3.94 billion, or 32 percent of GDP, while K5.36 trillion ($5.22 billion), or 43 percent of GDP, was domestic debt.
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The external debt stock, according to the report, consisted of 73 percent Central Government debt and 27 percent central bank debt as at end-March 2023.
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International Development Association (IDA) continues to be the largest creditor to the Malawi Government with a holding of $1.414 billion, or 36 percent of total external debt, followed by the Africa Export Import the debt.
In a paper titled Navigating Fiscal Challenges in sub- Saharan Africa by senior IMF economists yesterday, the Bretton Woods institution raises concerns of a looming debt crisis in the region.
It identifies five policy actions African governments should take to preserve the sustainability of public finances, while also achieving the region’s development goals.
The suggested interventions include re-anchoring fiscal policy through a credible medium-term strategy, undertaking fiscal adjustment to bring debt back to a safer level, mobilising more domestic revenue, strengthening budget institutions to improve the implementation of fiscal plans and anticipating public resistance to reforms.
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“In most sub-Saharan African countries, fiscal policy focuses excessively on short-term goals and is not guided by a clear medium-term strategy. This lack of anchoring has resulted in frequent breaches of fiscal rules and ever-increasing public debt levels,” reads the paper.
IMF staff analysis shows that most countries in the region will need to reduce their fiscal deficits in the coming years.
In the 2023-24 financial year, the government has budgeted for K3.87 trillion against K2.55 trillion in revenues and grants, translating to K1.23 trillion of fiscal deficit for the year.
Malawi has been grappling with elevated debt levels with the rising total public debt and debt servicing costs pushing the country into distress.
The government has lately intensified efforts toward securing a temporary relief through restricting.
Recently, the Treasury set a debt restructuring strategy which serves as a cornerstone for restoring debt sustainability.
The debt plan, according to a memorandum the government issued, is designed to achieve debt sustainability and close the financing gaps.
It says the strategy seeks to bring external public debt back to a moderate risk of debt distress in the medium term through a combination of policy adjustment and the necessary debt treatment.
Malawi has engaged creditors such as China, India, and Afrexim Bank.
In its 17th Malawi Economic Monitor (Mem) released recently, the World Bank said the success of the ongoing external debt restructuring negotiations between Malawi and its creditors would help ease the country’s debt burden.
