Ecama Treasury back govt on Chinese loans
Economics Association of Malawi (Ecama) has backed the recent announcement by government to borrow $1.5 billion (K817.5 billion) from China to fund several infrastructure development projects, arguing that Malawi does not have the capacity to fund them in the near future.
President Peter Mutharika has not explained how much more Malawians will become indebted following the securing of the agreements on the projects, among them a 300 megawatts (MW) Kam’mwamba coal-firedpower plant with a project cost of $667 million (about K387 billion) to be implemented by Gezhouba Group Corporation Limited of China.
The other projects the President announced last week include the National Identity Cards (IDs) project worth $50 million (about K29 billion) and construction of a new Chileka International Airport in Blantyre at the cost of $285 million (about K165 billion).
In an interview yesterday, Ecama executive director Edward Chilima said Malawi cannot construct a new airport at Chileka or increase power generation capacity without borrowing.
He said: “If we don’t borrow, will we be able to construct an airport? It is a fact that we cannot raise our own resources and the loans will be for good intentions such as Blantyre District Hospital. Only if we were borrowing for consumption, then we would be in trouble.”
But Ecama’s position is in contrast with the situation on the ground which indicates that Malawi’s debt levels, as at December 31 2014, have risen to similar levels of $2.6 billion before it was cancelled in 2006 under the Highly Indebted Poor Countries (Hipc) initiative.
A March 2015 public debt analysis of Malawi by International Monetary Fund (IMF) found that public debt changed from 57 percent of gross domestic product in 2012 and was expected to reach about 76 percent of GDP in 2014.
The alarming levels forced government to suspend domestic borrowing in June 2014. By then, it had already reached K340 billion and K515 billion by December 2014.
But Chilima said, comparatively, the public debt levels in relation to the GDP was currently on track.
Ecama also asked the government to enhance domestic resource mobilisation so that our consumption budget is taken care of with domestically generated funds.
Nations Msowoya, deputy director for the Debt and Aid Division in the Ministry of Finance, confirmed that the loans would be obtained from the Exim Bank of China and that Minister of Finance, Economic Planning and Development Goodall Gondwe would table Loan Authorisation Bills in Parliament in due course.
In the Ministry of Finance’s view, while the external public debt has been an issue if contextualised in terms of gaps and the multiplier effect from the investments, the loans were necessary.
“Debt is a dynamic thing. Despite the IMF saying it has reached alarming levels, as a country, we have never defaulted on repayment even before Hipc. I think the other question to consider is the nature of the projects being implemented. Are they investments or just consumption?” said Msowoya who is also the ministry’s spokesperson.
Msowoya would not go into specifics of the loans such as repayment period and interest rates, but said the terms of Chinese loans were “standard”.
