University of Malawi’s Chancellor College economics professor Ben Kaluwa has cautioned Treasury to guard against borrowing for consumption and instead attract foreign direct investment as part of debt sustainability.
The economist said this yesterday in an interview in reaction to the Reserve Bank of Malawi (RBM) External Debt Report, which shows that Malawi’s external debt is still huge.
Kaluwa said Malawi should continue obtaining concessional loans—loans extended on terms substantially more generous than market loans with interest rates below those available on the market or with grace periods—from bilateral lending institutions.
He said it would be advisable for Malawi not to obtain commercial loans, observing that the country’s trade balance is negative.
Said Kalua: “It is encouraging that Malawi has restrained itself from borrowing from external commercial lenders and resorted to borrowing from bilateral institutions such as Bretton Woods institutions on concession basis and with longer grace period.”
On his part, Economics Association of Malawi (Ecama) president Chikumbutso Kalilombe advised government to borrow for investment rather than the current trend in which borrowing is heavily skewed towards consumption
As at the end of December 2018, the RBM report shows that the country had about K1.57 trillion external debt, of which K1.2 trillion is from multilateral lending institutions while K312.8 billion is from bilateral lenders.
Malawi’s debt has increased rapidly since the country got relieved of its external debt in 2006. In September 2006, the International Monetary Fund (IMF) and World Bank wrote off Malawi’s $2.9 billion of Malawi’s external debt, totalling 90 percent of the official foreign debt.