Advertisement
Business

Report exposes gaps in debt management

Advertisement

A recent report released by Alliance Capita l Limited has indicated that effectiveness of public loans in Malawi has been undermined by lack of adherence to debt management principles and the absence of a clear oversight framework for monitoring and tracking the use of borrowed resources by government.
The firm has further said corruption and abuse of borrowed resources have also undermined the impact of both domestic and foreign loans on the country’s economic front.
The report gives an example of the $100 million loan from the Exim Bank of India, which was meant for purchasing of tractors and maize shellers for smallholder farmers.
“While the country is repaying the loan, information in the public domain revealed that the equipment from the loan did not reach the intended beneficiaries such that the country cannot point at the commensurate benefits to the intended beneficiaries attributable to the loan,” Alliance Capital said in its latest weekly market review report.
Going forward, Alliance Capital said, while it is inevitable that government will continue to borrow due to the limited domestic resource envelope, what is key is that the country needs to strengthen its debt management framework while channeling the borrowed resources towards sectors that have significant bearing on the country’s sustainable development.
“Government should prioritise channeling the borrowed resources towards investment oriented programmes and projects than consumption oriented ones. At the same time, accountability in the use of these resources remains key if any meaningful gains are to be attributed to the loans.
“As such, there is need to strengthen the oversight institutions for monitoring and tracking the use of the borrowed resources,” part of the report reads.
These sentiments are coming at a time when experts have said rising external debt signals mismanagement of the economy and portrays a gloomy picture going ahead as the economy has not been growing enough to enable authorities to pay back the loans when they become due.
Giving a ministerial statement on the status of public debt to the last sitting of Parliament, Minister of Finance, Economic Planning and Development, Goodall Gondwe, said cumulatively, the country has borrowed over $6 billion from external sources to finance development interventions from the time the country attained self-government in 1964 to date.
Earlier Chancellor College economics professor, Ben Kalua, said it is worrying that the country is slipping back to a debt burden similar to the period before 2006 when the World Bank and the International Monetary Fund (IMF) wrote off Malawi’s external debt under the Enhanced Heavily Indebted Poor Countries (Hipc) Initiative and the Multilateral Debt Relief Initiative (MDRI).
As a result of reaching the HIPC completion point, Malawi received an equivalent of $3.1 billion in total nominal debt relief.
Cur rently, according to Gondwe, external debt to gross domestic product ratio is at 20 percent against a recommended threshold of 30 percent.
But, Kalua said accumulating huge debt stock is not sustainable and that Malawi cannot continue to rely on its development partners for debt forgiveness.
“Government should know that this is not a good sign coming from a period of debt forgiveness not so long ago,” he said.
In a separate interview, President of the Economics Association of Malawi, Chikumbutso Kalilombe, said Malawi is shooting itself in the foot by accumulating more debt stock as any economic gains made will be channeled towards servicing the debt burden.
Going forward, he said there is need to keep growing the economy by channeling resources to infrastructure development, realistic budgeting and clearing out private sector arrears so that industry has room to thrive

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

Related Articles

Back to top button
Close

Adblock Detected

Please consider supporting us by disabling your ad blocker