Malawi Economic Justice Network (Mejn) has warned government that the country risks getting stuck in the poverty vicious circle unless it engages in responsible debt management both at domestic and international levels.
In his statement during a meeting with members of Parliament (MPs) and other stakeholders on the proposed K1.3 trillion 2017/18 National Budget in Lilongwe yesterday, Mejn executive director Dalitso Kubalasa observed that the country borrows a lot and with no particular focus, a development he said has consequences with the huge amount of the debts choking it at the end.
He said the country has K860 billion domestic debt, out of which only K185 billion has been reported to be repaid in the current budget; leaving the country in a trap of offsetting the debt.
Said Kubalasa: “We are far from eradicating poverty as the situation is worsening. In fact, domestic borrowing is more expensive as the country has to pay that for a long time and at a high interest rate at 37 percent, and the figure is still adding up. This development is not helping at all. Something needs to be done.”
In this regard, the Mejn chief lobbied MPs to consider passing grants and loan authorisation Bills in the National Assembly that are of national importance and qualify for the intention they have been borrowed for.
Said Kubalasa: “Some of the things that we borrow money for are not worth it. They are not priorities and the problem is that we only borrow for consumption and not investment. Had it been we were investing, things could have been different.”
Chairperson of the Parliamentary Committee on Social and Community Affairs, Richard Chimwendo-Banda, said the local debt was now worrisome as the generations to come will have to suffer the consequences.
He noted that the debt is equivalent to the proposed budget which is not good for an economy.
Said Chimwendo-Banda: “The figure K860 billion is very worrisome. We need to change our borrowing. It should not be for consumption only, we will make sure that when we go to Parliament we advocate reasonable borrowing. This figure is alarming.”
He said it is high time the country started following the debt management strategy where the Reserve Bank of Malawi (RBM) controls its borrowing.
In summing up, Kubalasa said there is need for government to use its parastatal bodies to generate revenue as the current budget is heavily sponsored by local resources at 80 percent.
In his remarks, United Nations Children’s Fund (Unicef) country representative Johannes Wedenig said there is need for government to reduce domestic borrowing as the repayments, in some cases, are enough to fund some ministries, departments and agencies (MDAs) for one financial year.
He said: “Debt repayment cost forecasted to be K185 billion, which is approximately 14 percent of the national budget, remains high. This is 1.4 times more than the proportion of the health sector budget, there is need to instil fiscal discipline amongst ministries and departments to avoid unnecessary domestic borrowing.”
In February this year, World Bank country manager Laura Kullenberg also warned that rising domestic debt, although manageable, was putting the country at risk of plunging deeper into poverty as more pro-poor resources will go towards debt servicing.
During the first six months of this financial year, government borrowed K25.1 billion locally despite an improvement in fiscal deficits.
Social and economic commentators have expressed fear that Malawi’s debts might have reached pre-debt relief levels under the Highly Indebted Poor Countries (Hipc) initiative, an assumption Ministry of Finance, Economic Planning and Development has dismissed.
Prior to Hipc debt relief in 2006, Malawi’s external debt stood at $2.5 billion and is now estimated at $1.9 billion. n