Sosten Gwengwe’s headache
Malawi faces debt distress
Finance Minister Sosten Gwengwe Tuesday conceded that the Treasury was finding it almost impossible to balance its books due to the ever pressing public debt burden which is continually eating into the meagre resources available.
This comes as experts have oftentimes warned that the country was on a path towards a debt overhang—a debt burden so heavy that the country may not have the capacity to carry more loans.
Available figures show that as at September 2022, public debt had risen to K7.3 trillion. Of the public debt, external debt was recorded at K3.3 trillion or 45 percent of the total debt stock while domestic debt was recorded at K4 trillion or 55 percent of the total debt stock.
In recent years, external debt has been rising rapidly, with debt service costs increasing from K12.3 billion in 2018 to K33 billion in 2022.
Speaking when delivering a lecture at the Malawi University of Business and Applied Sciences (Mubas) on ‘Leveraging on Digitalisation to Boost Domestic Budget Revenue,’ Gwengwe attributed Malawi’s situation to donor overdependence, among other factors.
“Our budget does not match, even if we put what we collect and grant together; it is not enough to meet our expenditure requirements.
“As our revenues are not increasing as much as the expenditure is increasing, we are widening the deficit,” Gwengwe said.
He said the ever yawning budget deficit has over years then pushed the government to borrowing, a situation which has piled more pressure on the treasury.
In the 2023-24 fiscal year, the gap is seen at K1.32 trillion or 8.7 percent of GDP, which is above the three percent international recommended level.
The budget deficit has grown by about 30 percent from K1.01 trillion in the 2022-23 budget.
To address the problem, Gwengwe said harsh choices should be made towards cutting public expenditure and operating within means.
“We cannot really save the country if we are all conformists,” Gwengwe said.
Mubas Associate Professor Betchani Tchereni commended the minister for being forthcoming with the truth.
He said the country needs to work towards diversifying its production base through means of industrialisation, among other things, to grow its revenue outturn.
Meanwhile, the Malawi Revenue Authority (MRA) is working on digitalisation as a way of increasing revenue base.
MRA Head of Corporate Affairs Steven Kapoloma said digitalisation is the way to enhance revenue collection.
A recent study by Malawi Economic Justice Network and Tax Justice Network Africa revealed that Malawi’s fiscal performance has resulted in large and increasing budget deficits over the past ten years with the shortfall expanding from K30.7 billion in 2012 to K857.8 billion by 2022.
The report says while the government of Malawi has made significant fiscal reforms in recent years, the development points to troubling fiscal times ahead.
The sharp rise in annual budget deficits has resulted in an astronomic jump in public debt levels which have increased from 28.6 percent of GDP in 2012 to 66.9 percent of GDP in 2022.
In its most recent Article IV assessment, the International Monetary Fund indicated that the external position of the country had deteriorated, largely due to reduced levels of exports of tobacco products amidst the global economic downturn as a result of the Covid-19 induced economic downturn.
Matilda Chimwaza Majawa is a Features Reporter at Times Group. She is passionate about women and girls empowerment.