The International Monetary Fund (IMF) has advised Malawi to ensure prudent borrowing and consolidate its fiscal position through debt sustainability management.
In its Country Report for Malawi released on Friday, IMF said Malawi remains at moderate risk of debt distress and high overall risk of debt distress.
The IMF indicates that Malawi’s baseline external debt indicators are below policy-dependent debt burden thresholds, adding that stress tests highlight vulnerabilities to export shocks given the country’s narrow export base and heavy reliance on rain-fed agriculture.
“Maintaining macroeconomic stability and debt sustainability will thus require careful macroeconomic management and difficult policy choices. To preserve debt sustainability, authorities need to be committed to the fiscal adjustmentin 2019/20 financial year while prioritising post-cyclone reconstruction and public safety,” reads the report in part.
According to IMF, the baseline present value of the public debt-to-gross domestic product (GDP) ratio remains above the benchmark until 2027.
It says this is a consequence of high interest rates on domestic debt accumulated during 2014 and 2017 and of primary deficits averaging 2.5 percent of GDP over the past four years, partly due to natural disasters.
IMF, however, says public debt will be reduced from 62 to 44 percent of GDP by 2027, corresponding to the present value of public debt falling below the low-income countries debt sustainability framework threshold.
“To achieve this, a domestic primary surplus of two percent of GDP should be targeted during the 2020/21 to 2024/2025 financial years, reinforced by a revenue mobilisation strategy, continued improvements in budget planning and management, procurement, public investment management, and debt management,” reads the report.
Treasury figures indicate that for the 2019/20 fiscal plan, payment of interest on the country’s public debt is projected at K243.9 billion or 3.9 percent of GDP, representing 8.8 percent increase from the amount paid during the last financial year.
University of Malawi’s Chancellor College economics professor Ben Kaluwa said it is important that government manages debt to avoid unnecessary pressure and stress on government operations.
“Managing debt is key because elevated debt levels will put us in a risky situation and can undermine efforts to stabilise the economy,” he said.