By Justin Mkweu & Mandy Pondani
Public debt has grown by about K730 billion within nine months, jumping to K6.38 trillion in March 2022 from K5.65 trillion in June last year.
Finance Minister Sosten Gwengwe told a National Youth Conference in Lilongwe yesterday that the rate was unsustainable.
Now at 63 percent from 56.8 percent, Malawi’s debt-to-gross domestic product (GDP) ratio has surpassed the internationally recommended 60 percent, pushing the country into distress—a state where a country could be unable to meet the repayments due to its creditors.
Gwengwe said the government remained vigilant towards addressing the problem, which has been compounded by challenges such as fuel and forex scarcity, power woes, upward trajectory of inflation, worsening economic conditions and labour agitations.
“These challenges are real and must be resolved. They affect all people regardless of political divide. Everyone needs to play a role. [The] government is doing its best to strike a delicate balance,” he said.
The minister said the government has put up strategies to reverse the situation, citing expenditure control measures, eased access to finance, skills and markets, expansion of social protection programmes, restoration of Kapichira dam, Extended Credit Facility (ECF) programme discussions with the International Monetary Fund (IMF), negotiations bordering on additional lines of credit for fuel importation and export diversification.
In a recent interview with CNBC Television in India, IMF Managing Director Kristalina Georgieva said unsustainable debt makes entry into Malawi difficult for facilities such as the ECF.
“When I look at low income countries, I am really worried. A country like Malawi; no fuel, no food and yet debt is so unsustainable, makes entry to the IMF more difficult,” she said.
However, Malawi’s predicament has not surprised economist Milwad Tobias, who said the economy has been going through the doldrums.
He blamed the situation on the government which, he said, does not want to take advice on how the economy can be revamped.
“We would not have reached this far if the government took heed of economic advice from experts. The way things are being done now, we should brace for tough economic conditions,” Tobias said.
The 2022-23 overall fiscal balance was estimated at a deficit of K884.0 billion, which is 7.7 percent of GDP.
The deficit was said to be financed through foreign borrowing amounting to K230.07 billion and domestic borrowing amounting to K653.98 billion.
As one way of addressing problems facing Malawi, Gwengwe announced that the government will soon be imposing level-one austerity measures aimed at saving government resources as it works at lessening the country’s debt budget, a move which stakeholders have trashed.
“Government is considering level one of austerity measures. If you hear of a complete travel ban, don’t mourn because we are trying to run away from this debt trajectory in order to save some money,” Gwengwe said.
He disclosed that, out of the K2.8 trillion 2022- 23 national budget, K800 billion has to be borrowed from outside, which has culminated in rising levels of debt.
“In October there is a debt maturity which is coming up; it’s around K352 billion and it must be paid for loans that were committed not yesterday but sometime back. This is a cycle that ought to be broken,” Gwengwe said.
However, spokesperson for the main opposition Democratic Progressive Party on finance matters Ralph Jooma said the proposed austerity measures are “hypocritical”, adding that they stand to burden poor Malawians and not those in authority.
“We welcome the idea that the minister wants to strengthen austerity measures because we have to live within our means, but we are saying these measures should apply uniformly; they must not be selective or hypocritical. I will tell you that there has been forex flight when these senior official travel abroad and its foreign companies that benefit at the expense of our economy,” he said.
However, Bertha Phiri of the Malawi Economic Justice Network said the proposed austerity measures stand to kill the economy, adding that the tourism industry has in recent months been choked due to the ban on lakeshore conferences.
“If we can’t allow policy framers to travel or meet on grounds that we are saving the resources, then we are getting it wrong. For me, it’s not about austerity measures but how prudent we are with the resources we have,” Phiri said.