Malawi needs a prudent external borrowing and a consolidated fiscal position to limit domestic financing needs which is key to maintaining total debt sustainability, the International Monetary Fund (IMF) has said.
In a country report for Malawi released on Wednesday, the global lender said that Malawi remains at moderate risk of debt distress reflecting vulnerabilities to domestic debt and external conditions.
Reads the report in part: “Absorption of weather shocks while maintaining macroeconomic stability and debt sustainability will require careful macroeconomic management and difficult policy choices.
“Close attention will need to be paid to the financing terms of any proposed infrastructure investments given the limited headroom for further borrowing.”
According to IMF, risks of negative financing shocks in the form of delayed donor support and lower than expected revenue collections also remain given that Malawi is a high aid dependency nation.
In such an environment, the IMF calls for efforts to maximise the impact of finite domestic resources, efforts to broaden the tax base and strengthen public procurement and public financial management.
The report said Malawi’s debt has more than doubled in 10 years and now stands at around 54.3 percent of gross domestic product (GDP) compared to 26.7 percent of GDP in 2007.
The nominal level of GDP has increased between 2011 and 2016 and reached K718 billion due to net domestic financing of fiscal deficit and the securitisation of old arrears.
But Minister of Finance, Economic Planning and Development Goodall Gondwe, in the 2017/18 budget statement, was upbeat that the strong fiscal and monetary policies, reinforced by the IMF- supported programme, have sustained the recovery which is continuing into 2017 and is strongly expected to continue to gather strength in 2018.
However, he admitted that government has a lot to do regarding the systematic compliance by the fiscal system to the country’s financial rules and regulations.
In an earlier interview, Secretary to the Treasury Ben Botolo said government is focusing on balancing the macroeconomic stability and public finance management reforms.
He hinted that depending on economic realities on the ground, government is considering negotiating another Extended Credit Facility (ECF) programme after successfully implementing the previous one, which resulted in disbursement of about K20 billion. n