Malawi’s debt trap
Nine-year-old Ruth is a Standard Six pupil at Mbayani Primary School in Blantyre. Going to the school each weekday, with her chitenje-made bag hanging around her neck, the least she would do is hope and dream for a bright future. She would like to become a nurse, she says.
Her school, Mbayani, like most public schools countrywide, is densely populated.
Unfortunately, Ruth’s first arena of conflict will have nothing to do with her involvement in anything else; her neck carries an invisible chain, in form of debts the government took when she had no idea about what debt is.
Her future is mixed and murky; clouded by an obligation to settle the hefty government debt arrears plus interests. The borrowed money seems not to have trickled down to Ruth’s school to bail the pupils out of the numerous hardships they endure in their education.
Government’s appetite for borrowing has continued to grow, with latest figures from the Reserve Bank of Malawi (RBM) showing that Malawi’s public debt rose during the fourth quarter of 2017 to K 2.47 trillion from K2.35 trillion recorded in the third quarter.
External debt rose by K47.1 billion or 3.3 percent to K 1.48 trillion while domestic debt stock increased by 7.9 percent to K 984.7 billion at the end of the quarter.
Between independence in 1964 and now, the Malawi government has borrowed over $ 6 billion from external sources.
Much of the borrowed money is ill-prioritised as suggests immediate past president for the Economics Association of Malawi (Ecama), Henry Kachaje.
“If you reflect and see in terms of economic progress that we are making, probably it gives us an indication that we may not be borrowing for essential services or we have not been investing wisely the money that we have been borrowing,” worried Kachaje.
For instance, at a time the education system is in shambles with poor learning environment in most public schools, the Malawi Government got a $ 70 million Chinese loan to build a magnificent stadium in the administrative capital, Lilongwe, whose economic value is yet to be seen.
The government allocated K841 million from the 2016/17 national budget to operationilize the stadium.
And reports suggest that water and electricity bills cost about K 10 million each month and the overall maintenance cost is about K 150 million per year.
At a time there was a looming hunger due to dry spells and the fall armyworm, using a similar funding model, the government promised to yet construct another stadium in Blantyre, obviously, with borrowed money.
Well, the system might be forgiven for this. But not for borrowing K 9 billion from the African Development Bank (AfDB) for drilling of 450 boreholes and construction of 166 toilets at trading centers and markets across the country but whose impact is yet to be traced.
At this rate of borrowing, according to commentators, Malawi is gradually crawling back to the Heavily Indebted Poor Countries (Hipic) level from where it was scraped in 2006 and got a debt relief.
Her debt levels were slashed from 90 percent of the Gross Domestic Product (GDP) to only eight percent. And now it is hovering around 40 percent of the GDP.
While the priority list might have been turned up-side-down, popular opinion also suggests that much of the money is lost through corruption.
Dalitso Kubalasa is Executive Director for economic think-tank, the Malawi Economic Justice Network (Mejn) and a study his organisation conducted recently substantiates the notion.
“It is not a crime to borrow, but we always need to watch what we are borrowing for and need to watch over what we are using the debt that we are accruing for,” suggests Kubalasa.
As the future generation obliged to pay the lump sums of debt arrears for the ever rising foreign debts, already, appetite for domestic borrowing by government is pushing some businesses out of the market.
According to Kubalasa, at the current rate, it may take longer for other market players to start benefiting from the recent cuts in borrowing rates if the government continues to dominate in the credit market.
His statement augers well with concerns from the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) which says some of its members have already been forcibly pulled out of the game.
The worry broadly, according to Kaferapanjira, is that the borrowing is going to reduce economic growth as it is for purposes of consumption.
“One of the impacts on the private sector is that one sector [the financial sector] makes a bit of money, but the productive sector then has to pay for that because the perceived risk is actually passed on to those who borrow for production and then the interest rates goes up,” he said.
More often than once, the International Monitory Fund (IMF) has issued a red flag on the same.
IMF Resident Representative to Malawi, Jack Ree, says Malawi Government needs to closely monitor its debt dynamics given the rapid speed at which it is increasing.
“A country cannot keep on borrowing money to consume more than what it can afford. It does not work,” warns Ree.
The growth in domestic debt stock comes less than a month after Finance Minister, Goodall Gondwe, told Parliament that Capital Hill does not have a growing appetite for domestic borrowing.
To him, all is well, saying the current debt levels were sustainable and that government was systematic in its borrowing.
“I hope this can be understood because if you are going to hold government to stop borrowing, you are saying stop growing the economy.
“The borrowing that we make now, in fact, is accelerating economic growth. If we stopped it, it will hinder growth,” claims Gondwe.
But from the look of things, the burden created is not shouldered by the Capital Hill alone.
The private sector, and the future generation, including Ruth, have a fair share of the load. Its impact then spreads to the general populous.
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