Advertisement
National

Malawi’s foreign debt rises to $ 1.9 billion

Advertisement

Malawi government’s appetite for borrowing is worrying many including the International Monitory Fund (IMF) which warns that the country is at risk of a debt distress if no swift action is taken to reverse the situation.

Latest figures show that outstanding domestic debt stock stands at over K 913 billion, almost close to the country’s annual budget, while the external debt stock is above $1.9 billion (about K140 billion).

What is worrying is that within a space of three years, over K1.4 trillion was borrowed between 2014 and 2017.

Advertisement

The good news, however, is that the Fund says there still is sufficient space before Malawi gets back to the Heavily Indebted Poor Countries (HIPIC) level where its debt level was slashed from 90 percent of GDP to 8 percent in terms of actual (or present) value.

Now the level has gone back to about 40 percent of GDP, says the IMF.

The Fund’s Resident Representative to Malawi, Jack Ree, says public debt has increased rapidly since the country got debt relief in 2006, and this can lead to a number of dangers.

Advertisement

“A country cannot keep on borrowing money to consume more than what it can afford. It simply does not work,” warned Ree.

He said borrowing for public investments may be more sustainable but there is also a danger that it fails to bring the intended outcome because of poor planning or governance problems among others.

Finance Minister Goodall Gondwe recently told Parliament confidently that the current debt levels were sustainable and that government was systematic in its borrowing.

“We may have made mistakes but we have limited borrowing to productive sectors,” said Gondwe.

Figures from the Treasury show that prior to 2006, the country’s external debt stock was about $ 3.0 billion, an equivalent of 150 percent of GDP

The debt stock fell drastically to just under $500 million, representing an 11 percent drop, thanks to debt relief received in 2006 under the HIPC initiative and the Multilateral Debt Relief Initiative (MDRI).

Currently, these ratios are 21 percent and 77 percent against the recommended thresholds of 30 percent and 100 percent, respectively.

The IMF’s latest debt sustainability assessment continues to rate Malawi at a ‘moderate’ risk—which means that the current level of debt is largely manageable.

However, Ree says Malawi needs to closely monitor its debt dynamics given the rapid speed at which it is increasing.

Malawi Economic Justice Network (Mejn) is alarmed at the rate both the domestic and foreign debts were raising at unprecedented levels.

On domestic debt, Mejn Executive Director, Dalitso Kubalasa said it may take longer for other players to start benefiting from the recent cuts in borrowing rates if the government continues to dominate in the credit market.

“We always highlight that it is not a crime to borrow, but we always need to watch what we are borrowing for and how we are using the debt accruing. And that has been a problem for Malawi,” said Kubalasa.

Economics Association of Malawi (Ecama) immediate past president, Henry Kachaje, however, said Malawi risks getting back to the HIPC levels soon with a rising future obligation to the coming generation.

“As much as the [finance] minister would like to assure the nation that our debt levels are still within manageable levels, I think as a country we should still be cautious.

“We have steadily been borrowing, but if you reflect and see in terms of economic progress that we are making, probably it gives an indication we have not been borrowing for essential services or we have not been investing wisely, the money we have been borrowing,” said Kachaje.

Facebook Notice for EU! You need to login to view and post FB Comments!
Advertisement
Tags
Show More
Advertisement

Related Articles

Back to top button
Close

Adblock Detected

Please consider supporting us by disabling your ad blocker