President Lazarus Chakwera’s administration—alarmed at the public debt levels it inherited and worried about projected upward trend in the medium-term—is pushing for a four-pronged strategy to bring down the crippling loans to manageable levels.
According to information from Treasury, the President has approved a plan that includes returning to multilateral and bilateral creditors to negotiate debt relief.
The strategy will also be built around public expenditure efficiency and broadening external resource mobilisation to complement local efforts.
The plan also hinges on boosting domestic revenue through the Malawi Revenue Authority (MRA) tax collection efforts as well as fees and levies from ministries, departments and agencies.
With deep-rooted structural constraints around public finance management in general, fiscal imbalances and the structure of the rain-fed agricultural economy that have made it hard for Malawi to control its public debt for decades, the Chakwera’s fresh plan will need strong decisive leadership to work.
While the Covid-19 pandemic worsened the public debt levels as government was forced to borrow heavily to fight the disease that had already sent the economy into a tailspin, things started getting bad way before the disease hit Malawi in early 2020.
And Nation on Sunday’s analysis shows that when it comes to debt, things are likely to get worse before they get better if the administration ploughs ahead with the new debt management strategy.
As at now, Malawi’s public debt has climbed to 69 percent of the country’s national output as measured by gross domestic product (GDP).
By December 2020, the country’s Total Public Debt Stock (TPD) was estimated at K4.76 trillion, an increase from K4.13 trillion recorded in June 2020.
Thus, between June 2020 and December 2021, public debt surged by K630 billion in nominal terms and on a monthly basis, government was borrowing K105 billion to finance the fiscal deficit, which had yawned to a record high of K810.7 billion in the 2020/21 national budget.
But at K4.76 trillion, public debt accounted for 54 percent of GDP, down from 65 percent of GDP in June 2020, thanks to the GDP rebasing exercise that essentially propped up the value of Malawi’s nominal GDP from around $8.5 billion to $10.9 billion.
However, fast forward to September 2021, figures seen by Nation on Sunday show that public debt has jumped from 54 percent of GDP in December to 69 percent of GDP.
From another lens it means Malawi has breached the Southern Africa Development Community (Sadc) regional benchmark on public debt within the macroeconomic convergence criteria, which requires that public debt as a ratio of GDP should not exceed 60 percent.
According to figures compiled by Treasury as well as the International Monetary Fund (IMF), public debt is seen growing to 78.2 percent of GDP by close of 2021, before climbing further to 81.3 percent of GDP in 2022 and 83 percent as well as 83.8 percent in 2023 and 2024, respectively.
An internal government report on debt situation we have seen shows that prior to the outbreak of Covid-19 pandemic in April 2020, Malawi’s public debt had already been growing, in part driven by the long history of the country’s fiscal imbalances related to the incoherencies in public financial management, and weather related shocks associated to the cyclone Idai of 2019.
“Malawi’s total public debt levels have doubled between 2013 and 2020 to 69 percent of GDP and is projected by IMF to continue to 78 percent of GDP at the end of 2021,” reads the report in part.
According to the IMF’s debt sustainability analysis (DSA) of 2020, Malawi is at moderate risk of external debt distress and high overall risk of debt distress.
The report adds: “The pandemic risks turning the precarious state of indebtedness in the country into a near unsustainable situation.
Consequently, during 2020, the government requested for debt servicing relief from creditors under the G20 Debt Service Suspension Initiative (DSSI), however, discussions on the same are ongoing.”
The 2020/21 Mid-year Public Debt Report showed that between June and December last year, government had to contend with a number of challenges with a bearing on public debt, including the high and rising primary deficit which financed by domestic debt at high interest rates.
Policy analyst Alex Nkosi said in an interview yesterday that the current debt levels are still worrisome and need immediate redress
He said the country is spending the much-needed resources on interest payments than on critical social services
Said Nkosi: “You will recall that in the 2020/21 national budget alone, for example, interest payments were a second of top 10 priority allocations at K376 billion and were way above the allocations to agriculture sector at K354 billion, health sector, justice and security at K95 billion, social welfare at K92 billion and energy sector with only K58 billion allocation.
That trend is a sad situation.
“In the 2021/22 national budget, which is worth K19 trillion, public debt interest payments are projected at K299.7 billion or 2.9 percent of the rebased GDP.
Of this amount, K14.5 billion is payable to non-residents while K285.3 billion is payable to residents. The projected public debt interest is 27.2 percent of the country’s projected domestic revenues projected at K1.101 trillion, of which tax revenues are estimated at K1.044 trillion, representing, 10.2 percent of GDP.
An international development expert Peter Yakobe yesterday said developments on the fiscal front signal that public debt will rise over the short to medium run unless fiscal consolidation measures are undertaken and the spread of the Covid-19 pandemic is brought under control.
The rising debt levels come against a background of the country in 2006 having 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.
Treasury had not responded to our questionnaire sent last week, but Finance Minister Felix Mlusu had indicated in this fiscal year’s budget statement that the government has a plan for bringing down the public debt.