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Malawi debt worries IMF

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The International Monetary Fund (IMF) has said it is concerned about the debt situation in Malawi.

IMF Director of Communication Gerry Rice told reporters on Thursday that the fund is watching the situation on the debt front to see what progress can be made.

Rice was responding to a question on the progress of Extended Credit Facility talks with Malawi.

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The Daily Times asked Rice to say what the Malawi Government needs to do to get programme talks back on track. We also wanted to find out which creditors specifically the government needs to restructure loans with.

Rice said Malawi is facing significant challenges, including high poverty incidence, despite the reforms that have been attempted by the authorities.

“We are seized of the seriousness of the situation. We are concerned. We want to help. And we’re now watching this situation very closely on the debt front to see what progress can be made,” Rice said.

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He said, over the past months, the IMF has been having very productive discussions with the Malawi Government on their request for a programme with the fund.

“Again, it’s becoming a very continuing refrain. Their request was for an Extended Credit Facility arrangement, actually. So, those discussions are ongoing. They’ve been happening remotely and, again, with a view to supporting Malawi.

“I don’t have a breakdown of creditors for you right now. I’m sure we’ll get there. But what I would say is that Malawi’s public debt is unsustainable. And the authorities have engaged debt advisers to restore debt sustainability. We don’t, as is the case with all countries, get involved in those detailed discussions between authorities and creditors. We try to play a helpful role but we don’t get directly involved. Those are facilitated by the authorities and by the debt advisers,” Rice said.

On Tuesday, Finance Minister Sosten Gwengwe told reporters in Lilongwe that ECF negotiations with the IMF remain on course and that the Bretton Woods institution has asked Malawi to restructure its debt to allow for a Staff Level Agreement with the fund.

The development comes at a time Malawi’s total public debt stands at K5.8 trillion, representing 56.8 percent of gross domestic product.

Gwengwe said the IMF Mission team was expected in the country for the ECF negotiations from last Monday but that the talks have been pushed forward as the Treasury requested the mission to get all the necessary approvals from the fund to reach a Staff Level Agreement with Malawi after the talks.

According to Gwengwe, Malawi and IMF have agreed on most of the ECF programme structures and components, except the thorny issue of debt sustainability.

He said Malawi’s public debt is being classified as being unsustainable due to the country’s limited capacity to service the current level of debt.

“We, as a country, are therefore asked by the IMF to restructure our debt to sustainable levels to within the IMF acceptable thresholds through debt treatment or debt restructuring.

“Substantial progress has been made nonetheless. We have been engaging our creditors to restructure our debts to sustainable levels and our development partners for non-debt creating instruments that could help us close the financing gap and, at the same time, injecting some liquidity in the economy,” Gwengwe said.

Last week, IMF Managing Director Kristalina Georgieva said a country like Malawi, with no fuel and food yet with unsustainable debt, is difficult to enter for the fund.

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