By Kingsley Jassi:
As the government ponders restructuring domestic debt, which has piled to unsustainable levels, commentators remain divided—with commercial banks fearing its repercussions.
But others feel the ‘road to economic recovery should bring shared pain’, hence, backing the move.
Much of the K21.6 trillion public debt is owed to local creditors.
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The domestic debt has quick maturities and high interest rates. which are piling pressure on the fiscal space, as debt service costs are expected to be K2.2 trillion this year—an equivalent of 50 percent of domestic revenue.
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Finance Minister Joseph Mwanamvekha recently appealed to players in the financial sector to take the debt restructuring proposal positively considering the prevailing economic situation.
Speaking at a panel discussion during the launch of the World Bank’s Malawi Public Finance Review, University of Malawi Economics Professor Winford Masanjala said Malawi needed domestic debt restructuring more than foreign relief.
Masanjala, who once served in the government as secretary for Economic Planning, said economic recovery and stability needed reforms that might bring pain and that “commercial banks that have enjoyed high earnings out of the situation cannot be spared”.
Masanjala cited scenarios where the government had to hold the paying of arrears to the business sector as a relief measure that had worked before.
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But Bankers Association of Malawi President Phillip Madinga cautioned that the idea could destabilise the financial services sector that had supported sustenance of the economy.
He said the domestic public debt was not just a matter that concerned commercial banks but the broader spectrum of the financial sector.
“Remember there is pension money and also insurance resources that were invested in Treasury bills and Treasury notes.
“We need a strong banking industry that is vibrant and resilient to ensure that it supports a strong economy. If we shake our financial industry, it will come with implications,” Madinga said.
Madinga suggested a gradual approach with interventions that minimised shocks, urging the authorities to ensure expenditure cuts, fiscal discipline and accountability to optimise resource utilisation that would slow down domestic borrowing and eventually create some fiscal space.
However, he admitted that the financial sector needed to shift its attention towards a productive industry that had suffered low financing.
Meanwhile, the government is struggling to secure debt restructuring deals with foreign commercial creditors after some bilateral and multilateral creditors already provided the relief.
