Public debt rise worries World Bank
The World Bank has called on creditors and borrowers to collaborate to stave off the growing risk of sovereign debt crises triggered by the Covid-19 pandemic.
In a statement, World Bank chief economist Carmen Reinhart observed that while debt enables governments to have extra resources they need to invest in health systems, education and infrastructure, a debt problem makes all those ambitions suffer.
She said “That’s why it’s important to get the debt onto sustainable ground as quickly as possible.
“We can’t afford another lost decade.”
The bank’s call follows published 2021 International Debt Statistics (IDS) report indicating that the total external debt of Debt Service Suspension Initiative (DSSI), including Malawi, went up 9.5 percent to a record $744 billion in 2019 from the previous year.
Of this, the debt stock of DSSI-eligible countries to official bilateral creditors, composed by mostly G-20 countries, reached $178 billion in 2019 and accounted for 17 percent of long-term net debt flows to low and middle-income countries.
World Bank figures indicate that Malawi’s external debt stock has increased from $1.14 billion or 18.7 percent of gross national income (GNI) in 2009 to $2.23 billion or 32.5 percent of GNI in 2019.
Interest payments also moved up from $14.8 million in 2009 to $17.1 million in 2019.
The Debt Sustainability Analysis (DSA) conducted by the World Bank and International Monetary Fund (IMF) in May 2020 indicate that Malawi’s external debt portfolio remains sustainable over the medium-term.
Recently, IMF resident representative Farayi Gwenhamo said addressing debt vulnerabilities will require prudent fiscal policies hinged on the reorientation of public spending and increasing its efficiency; shoring up domestic revenue mobilisation, especially post Covid-19 and improving public finance management.
Meanwhile, Treasury figures show that the country’s public debt stock has risen to K4.1 trillion as at June 2020 from K3.4 trillion recorded in December 2019.
Ministry of FInance spokesperson Williams Banda said earlier in line with the debt sustainability strategy “we are opting for concessionary and foreign denominated loans, which are cheaper”.
