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Home News National News

Editorial: The huge cost of borrowing blindly

by Staff Writer
18/05/2015
in National News
2 min read
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What is coming out from the story about a loan from India to the Malawi Government to mechanise agriculture is that authorities borrowed the funds without undertaking a feasibility study on the viability of the project.
This is a very sad development as the repercussions of the decision to borrow blindly, as it were, are far-fetching. For a start, repayments of the loan will create unnecessary pressure on Treasury as well as burdening taxpayers whose contributions could otherwise have been invested in other worthwhile initiatives and programmes in sectors such as health.

Wilting maize due to dry spell which has been attributed to climate change
Wilting maize due to dry spell which has been attributed to climate change

What is even more pathetic and frustrating is the explanation from the Ministry of Agriculture, Irrigation and Water Development that, after all, the ministry did not intend to make profits from the equipment bought using the loan. To the ministry, making a profit would have been going against the objective of popularising agriculture mechanisation in the country.
With the grace period for the commencement of the repayment of the loan a year to go, reality is now sinking in that taxpayers will be paying back to the Indian bank K760 million a year for the K23 billion ($50 million) loan obtained to buy farming machines that have only managed to raise K542 million in four years.
The idea to purchase the tractors in itself was welcome as it could have gone a long way to improve efficiency and productivity in the sector.
However, as the Economic Association of Malawi (Ecama) has indicated, what is missing in the whole plot is whether there is a project implementation team or committee that should have ensured that the machinery was well utilised to benefit the nation.
Despite pushing the buck to the Ministry of Finance as responsible for loan repayments, the Ministry of Agriculture, Irrigation and Water Development owes the nation an explanation on why the funds were borrowed and where Treasury would raise the money for repayments.
Borrowing for investment is encouraged. But, in the present case, it appears the borrowing was done first before a project implementation plan was hatched; hence, the funds going down the drain.
It is not too late, though; hence, our appeal to authorities to go back to the drawing board and see where things went wrong and how much money can be generated from the tractor hire scheme to service the loans.

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