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Treasury outlines debt sustainability strategy

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SOSTEN GWENGWE

The government has outlined strategies on debt treatment grant mobilisation, and budget optimisation aimed at addressing the ever rising public debt in the short to medium terms.

This is contained in the mid-year budget statement which Finance Minister Sosten Gwengwe presented to Parliament weeks ago.

According to the national expenditure for the next months to March, on debt treatment, the government is currently asking Malawi’s creditors to restructure debts saying that they will be sacrificing and giving up millions of dollars in the Net Present Value haircuts.

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On grant mobilisation, Gwengwe said the Multi-Donor Trust Fund under the banner Friends of Malawi has been set up and donors are mobilising resources to bail out Malawi.

“The 3rd component in dealing with our debt sustainability issue is to optimise our budgets. Spend prudently and where possible cut. When creditors and donors are making sacrifices for us, the biggest question is what is your own sacrifice as a country as Malawi?” the finance minister said on budget optimisation.

Commenting on the development, economist Murry Siyasiya said it is good that the government has started responding to what he described as the debt crisis for Malawi.

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Siyasiya, however, expressed doubt if the strategy will work, arguing that tackling debt should be done from different angles rather than directly focusing on it alone.

“With inflation, the government will still need to spend more and in the absence of a wide tax base as it is in Malawi, the government will have no choice but still resort to borrowing,” he said.

Malawi’s debt has reached unsustainable levels in which preliminary positions as at end September 2022 indicate that Malawi’s Total Public Debt stood at K7.3 trillion, up from K6.38 trillion in March 2022, an increase of 14 percent.

Of the total debt, External and Domestic Debt accounted for 45 percent (K3.3 trillion) and 55 percent (K4.0 trillion) respectively.

As a percentage of GDP, the total debt in nominal terms stands at 64 percent which is above the internationally recommended 60 percent making it unsustainable.

Debt treatment has also been attached to a possible consideration for the Extended Credit Facility by the International Monetary Fund who believes Malawi needs to work on its debt.

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