15 years later, same old plea for debt relief

In his maiden address to the United Nations General Assembly made virtually on September 24 2020, President Lazarus Chakwera appealed to world leaders to cancel debts of least developed countries (LDCs), including Malawi.

His justification was that the LDCs were faced with challenges requiring collective effort to surmount the challenges worsened by the impact of the Covid-19 pandemic. Besides seeking debt relief, the President also pleaded for an extension of the moratorium on debt repayment to help the LDCs recover from negative impact of Covid-19 in a sustainable manner.

During a virtual conference on Growth in a Time of Crisis: What’s Ahead for Developing Economies on October 15 2021, Minister of Finance Felix Mlusu, speaking on behalf of LDCs, reiterated the plea for debt relief. He said main barriers to economic growth include unsustainable high levels of debt.

But World Bank Group president David Malpass cautioned low income countries, including Malawi, against continued heavy borrowing in the hope that their external loans will be forgiven.

Instead, he advised the poor countries to work out a gradual path towards consolidated economies with stronger focus on key priorities on poverty alleviation.

The catch phrase in Malpass’ submission is the need to check against continued borrowing in the hope that external debts will be written off.

Records show that Malawi’s external debt soared from $2.42 billion (about K1.97 trillion) to $2.94 billion (about K2.39 trillion) in 2020. And the debt levels continue to rise by the day.

In fact, figures from Treasury and the International Monetary Fund (IMF) project the public debt to grow to 78.2 percent of the gross domestic product (GDP) by close of 2021 before climbing further to 81.3 percent of GDP in 2022 and 83 percent in 2023.

For a country which in 2006 had 90 percent or $2.6 billion of its $3 billion foreign debt written off by international lenders under the Highly Indebted Poor Countries (Hipc) initiative, it is alarming that 15 years later Malawi is drifting towards heavy indebtedness.

Borrowing is not bad as long as it is done for meaningful investments and not mere consumption. Indeed, borrowing is deemed sustainable where the borrower is able to settle the debt within the agreed period without being driven into liquidation and utter ruin.

For the record, since 1964 when Malawi attained independence from Britain, the country has borrowed extensively to fund capital projects that were designed to benefit the nation through accelerated economic activity. Whether the projects borrowed funds were pumped into have had an impact on the economy and on the people of this country is a story for another day.

Today, the question we should be asking is: What are we borrowing for?

For some time, precisely since the 2006 debt relief, every time we queried the sustainability of the growing debt stock, fiscal authorities were quick to challenge that they were “within the acceptable levels” of debt sustainability.

But if truth be told, the so-called positive ratios of debt to GDP are merely statistics worked out using a formula which can change any time. They say numbers do not lie, but liars use numbers.

By June 2020, interest charges for the country’s debt stood at 36.6 percent of the GDP or the country’s total wealth. Put differently, for every K100 Malawi generates, K36.60 is used to pay interest on the accumulated debt, excluding repayment of the principal.

Many times, borrowing is driven by living beyond one’s means which leads to spending beyond earnings. In recent years, the Malawi Revenue Authority, the main source of revenue for financing the national budget, has been struggling to collect due to several factors, including a harsh economic environment. With direct budget support nowhere in sight, the budget has always been in deficit with the highest pegged at K718 billion last financial year.

Fiscal discipline is critical to managing and reducing high levels of borrowing to maintain fiscal and debt sustainability. Weak governance, especially in the public finance management system, and corruption remain areas of concern.

There is need to address the real problem to avoid the risk of mortgaging the country and its people to shylocks who will one day demand their pound of flesh from future generations.

In the long run, we should leave the country a better place for future generations. This is aptly summed up in Proverbs 13 verse 22: “A good man leaves an inheritance to his children’s children, but the sinner’s wealth is laid up for the righteous.