AfDB sees public debt on the rise
The African Development Bank (AfDB) has projected that the country’s public debt-to-gross domestic product (GDP) ratio will widen to 64.3 percent this year from 59.2 percent in 2021.
In its latest African Economic Outlook, AfDB said Malawi’s monetary policy is expected to remain accommodative and that the current account deficit is projected to improve from 13.9 percent of GDP in 2022 to 9.3 percent of GDP in 2023 on the back of exports.
Reads the report in part: “Downside risks relate to persistence of Covid-19, weather shocks, rising public debt and a worsening fiscal deficit.
“The public debt-to-GDP ratio will widen from 59.2 percent in 2021 to 64.3 percent in 2022, moving to crowd out the private sector. Inflation will remain relatively high in 2022 due to oil price increases before falling somewhat in 2023.”
Malawi sits at position five on the 2021 Global Climate Risk Index, with the AfDB outlook stating that the frequent cyclical weather-related shocks, including droughts, cyclones and floods have fed into persistent high public debt.
After the 2016 drought and 2019 floods caused by cyclones Idai and Kenneth, in 2022 cyclone Ana hit the country.
The International Monetary Fund estimating that Malawi could lose 0.29–0.62 percent of GDP per capita by 2030 and 2050.
On a positive note, the AfDB has projected that Malawi’s economy will grow by 2.8 percent this year and then jump to four percent in 2023, but that will depend on, among others stronger agriculture growth.
Other factors that could lead to such growth, according to the AfDB report, include Covid-19 containment and a successful vaccination programme, a recovery in tourism, exports, foreign direct investment and public investment.
Malawi continues to witness a surge in public debt now hovering around K5.8 trillion or about 55 percent of GDP. The World Bank has said the country is at high risk of debt distress and that the public debt is unsustainable.
Catholic University economics lecturer Hopkins Kawaye said in an interview the current debt stock is not sustainable, warning that it will lead to “debt overhang”, a situation where debt burden is so large thata country cannot take on additional debt to finance future projects.
“If we keep borrowing, then taxes will keep on rising to collect revenue to pay back these loans. This causes inflation and the purchasing power of consumers is lessened,” he said.
Last month, the Ministry of Finance and Economic Affairs attributed the country’s rising public debt to lack of scaling down on expenditures when development partners dumped Malawi after revelations of abuse of resources in 2013.
Secretary to the Treasury MacDonald Mafuta Mwale said the main cause of the country’s debt can be traced to the borrowing that was happening after donors stopped providing budget support.
He said: “At that time, we had 40 percent of the budget financed by donors.
“When we had the unfortunate incident of Cashgate, donors lost confidence in our systems and we lost the 40 percent support.”
In his 2022/23 National Budget Statement in February, Minister of Finance and Economic Affairs Sosten Gwengwe told Parliament that debt management will be at the centre of this fiscal year’s budget implementation.
“Government will engage its external creditors to restructure some of the loans. My ministry will intensify efforts to refinance all expensive and near-maturing debt using cheaper debt to create fiscal space,” he said.
