The International Monetary Fund (IMF) has cautioned Malawi against unsustainable borrowing to finance infrastructure projects under the Malawi Growth and Development Strategy (MGDS) III.
In its statement issued on Friday at the end of the first review of the three-year arrangement for Malawi under the Extended Credit Facility (ECF), IMF lauded MGDS III as a means to accelerate growth and poverty reduction.
Reads the statement: “It is important to ensure that their financing preserves debt sustainability. To this end, public investment management should be strengthened, including through rigorous prioritisation of projects and a strengthened project management framework.”
The MGDS III flagship projects include the Kam’mwamba coal-fired power plant, Songwe River Basin Development Programme, expansion of international airports, rehabilitation and expansion of railway lines and construction of new district hospitals among others.
However, Malawi has already started borrowing for the projects as Minister of Finance, Economic Planning and Development Goodall Gondwe announced recently that a loan agreement with a Chinese bank was due to be signed for Kam’mwamba coal-fired plant and it plans to obtain more loans for the execution of the flagship projects.
Speaking in an interview from Bali, Indonesia, where he is attending the IMF/World Bank meetings, Secretary to the Treasury Ben Botolo on Tuesday said the government has taken heed of the warning from IMF and had put in place measures to control debt.
He said the measures include lengthening the maturity of domestic debt to over three years and controlling guaranteed debt for parastatals.
In an earlier interview, Catholic University of Malawi economist Gilbert Kachamba advised government on the need for strong fiscal policies, reducing wastage in the ministries, departments and agencies (MDAs) and encouraging prudence in expenditure which, he said, might help in reducing the government appetite too borrow.
IMF also observed that the government needs to avoid extra expenditures avoid the 0.3 percent over-expenditure experienced by end of 2017 financial year.
IMF’s warning has come at a time when Malawi’s debt sustainability is under scrutiny following accumulation of public debt to K2.9 trillion, of which K1.5 trillion is domestic debt, as June 30, 2018.
The ambitious five-year strategy, launched earlier this year outlines flagship projects estimated to cost about K3.5 trillion to scale up public investments in the MGDS key priority areas of agriculture, education, energy, industry and tourism development, transport and information and communications technology (ICT) infrastructure, and health and population.
IMF also noted during the period under review, two benchmarks were met on time while most of the rest were met with a delay in part, due to capacity constraints.
Botolo confirmed that submission of reports of five MDAs were delayed.
MDAs are expected to submit expenditure returns, payroll reports and revenue returns on a monthly basis as a condition for funding.
However, Botolo said commitment control and compilation of commitments of government, bank reconciliations and monthly cash forecasts were done on time while development of monetary policy communication strategy was delayed in the period under review.