External debt service soars

Malawi’s external debt service has soared significantly in the past decade; a situation analysts fear is costing the country a lot in terms of development.

An analysis from published Reserve Bank of Malawi (RBM) figures show that external debt service has soared from K3.4 billion in 2011 to K71.2 billion in 2020, representing a 1 994 percent increase.

External debt is the amount that is required to cover the repayment of interest and principal on a debt for a particular period.

During the review period, external debt has gone up from K179.8 billion to K2 trillion with a huge chunk (K1.7 trillion from K128 billion in 2011) coming from multilaterals. While interest payments rose from K1 billion in 2011 to K15.4 billion in 2020.

However, at K71.2 billion, this is enough to carter for rural development expenditure as planned in the 2020/21 National Budget where an estimated 84 percent of the population resides in rural areas and a poverty rate of 51.5 percent.

During this financial year, an estimated K45.6 billion has been projected for rural development projects; K6 billion for construction of city roads; K7.7 billion for Constituency Development Fund (CDF); K3.4 billion for District Development Fund (DDF); and K2.3 billion for construction of water structures which includes boreholes.

In an interview on Thursday, economic statistician Alick Nyasulu observed that while debt repayments are budgeted, the country is losing a lot of resources through servicing external debt that could have supported infrastructure development.

Worse still, he said, the debt is not always properly used if incidences of over invoicing and fraud/corruption are taken on board from recent history.

“It is like a double cost. To maintain financial credibility, these debts need repayment but we need to get serious with fiscal governance to get value for money for any funds we borrow and repay.

“Huge debt can be inflationary especially that the kwacha is weakening and the impending food crisis in the Southern part of the country,” he said.

Speaking separately, economist Edward Chilima, who is also former Economics Association of Malawi (Ecama) executive director said the foreign debt levels have become unsustainable and unacceptable, which is also a sign of poor economic management systems over the decades.

“This is depriving the country an opportunity to invest in strategic infrastructure development.  This situation needs to be addressed as soon as possible, failing which, it will compromise the nation’s vision, as there will be inadequate resources for development,” he said.

An associate economics professor at The Polytechnic Betchani Tchereni also expressed worry at the situation which he said is stiffing growth of the county’s  productive industries are not growing with the appetite to borrow.

At this pace, he said, “debt is becoming more and more unsustainable especially considering the unimpressive growth of the economy.

“At the end of the day, we may have macroeconomic fundamentals that will be unstable and really unconducive to attract investment.”

Currently, Malawi’s debt stock has been on the rise, hitting a record K4.76 trillion by December last year, which is double the value of the revised 2020/21 fiscal plan pegged at K2.3 trillion.

A break-down of the public debt stock figure shows that as at end-December 2020, external or foreign debt was K2.04 trillion or 23 percent of GDP, while domestic debt was K2.72 trillion or 31 percent of GDP.

Minister of Finance Felix Mlusu said in his 2020/21 Mid-Year Budget Review Statement that government is at an advanced stage in establishing the Debt Retirement Fund (DRF), a special fund that will be used only to retire debt as it matures, to ease public debt burden.

The DRF will ensure that matured domestic debt is not rolled over when it matures as is the current practice.