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Malawi at risk of debt distress–IMF

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GWENHAMO—Talks are ongoing

The International Monetary Fund (IMF) has reiterated that Malawi remains at risk of a moderate debt distress, a position which if not managed, could undermine fiscal sustainability and frustrate strides towards economic recovery.

IMF Resident Representative, Farayi Gwenhamo, said this yesterday in a response to an emailed questionnaire.

The view is also contained in the recent joint IMF-World Bank Debt Sustainability Analysis (DSA) report issued in May 2020.

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The analysis based the risk situation for the economy on fiscal pressure emanating from the Covid-19 pandemic that has intensified debt build up.

“Addressing debt vulnerabilities will require prudent fiscal policies hinged on the reorientation of public spending and increasing its efficiency; shoring up domestic revenue mobilisation, especially post Covid-19 and improving public finance management,” Gwenhamo said.

This comes as public debt stock surged to K4.1 trillion as at June 2020 from K3.4 trillion recorded in December 2019.

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Figures presented to Parliament last week by President Lazarus Chakwera in his median State of the Nation Address show that 53 percent of the debt stock is domestic.

The K4.1 trillion debt stock represents 59 percent of the nominal Gross Domestic Product (GDP).

arlier this week, industry captains and economic commentators expressed worry over continued growing level of public debt in the country.

Africa Institute for Corporate Citizenship (AICC) Chief Executive Officer, Felix Lombe, said the debt situation is now out of hand.

He said options to recover by government are anchored on a gamble and a set of assumptions.

In a separate interview, Malawi Economic Justice Network (Mejn) Regional Coordinator for the South, Mike Banda, rated the debt level as worrisome.

Malawi Confederation of Chambers of Commerce and Industry (MCCCI), Head Membership Development and Communication, Tione Kafumbu, also said lack of fiscal discipline has been a characteristic of the past five years.

He said this has resulted in higher fiscal deficits of more than three percent of the GDP and total public debt as high as 62.8 percent.

In the 2019/2020 fiscal year, government had K1.527 trillion in revenue against a total expenditure of K1.841 trillion.

Currently, government arrears amount to K169.4 billion originating from unpaid bills by government Ministries, Departments, and Agencies.

Figures from the World Bank show that domestic debt stock went up between 2018 and 2019 from 28.2 percent of GDP to 29.7 percent of GDP.

The public debt has increased rapidly since the country got debt relief in 2006.

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