Thought on being in debt distress

Hon. Folks, while news that Malawi is poised to get back on track on IMF’s Extended Credit Facility (ECF) programme at the December review is good, I don’t think we have reason to celebrate yet.

Getting back on course isn’t an end but a means to an end. Derailing simply means losing direction, the True North. If that happens—as is the case now—you are lost at sea.

Often the ECF is cherished for its $150 million loan package and loathed for the “conditionalities” that come with it.

There’s no denying that adhering to the ECF targets is good, not just for the sake of the programme Malawi has with IMF, but also—if not more so—for the resuscitation of our economy, battered for much of the past 21 years of multiparty democracy by bad economic governance.

Adhering to the targets

has as its outcome the containment of the prevailing high inflation and high interest rates—two areas where Malawi scores the highest in the Sadc region—which suffocate economic activity and ultimately thwart efforts to reduce poverty and improve living standards.

But if getting back on track on ECF targets in December is a challenge, staying the course is even a greater challenge. In retrospect, hardly any administration since 1994 ever managed to be an IMF bed-fellow for the entire tenure of office.

APM administration has actually set the record of tripping so early, hardly before the end of the first fiscal year. Will it be a happy landing at the end of the tenure of office or will it be with a rough, knee-jerking bump?

My take is that the answer isn’t so much in the so-called government plan which Leader of Opposition Lazarus Chakwera opines is actually a zero-plan. The challenge with ECF targets is in the limits set on government borrowing and expenditure.

The APM administration faces a unique challenge of having to count out donor contribution to its recurrent budget, translating into having to finance its increasing operations (to cater for a population currently estimated at 17 million) by a budget reduced by up to 40 percent.

Thanks to Cashgate, they have declared that budgetary support isn’t working and Malawi has to learn to cut the cloth according to her size.

Budgetary support stopped in 2013 when government was already up to the neck in debts which have been growing from all fronts since then. It’s estimated that domestic debt is at K515 billion or 25 percent of GDP, external debt at 1.86 billion USD or 47.3 percent of GDP and arrears and promissory notes at over K170 billion or over 9 percent of GDP.

IMF, among other things, expects of government to reduce the ratio of domestic debt to GDP from 25 percent by end this year to 15 percent by end 2020.

The challenge is in improving revenue collection on the one hand and exercising frugality in spending on the other. In revenue collection, MRA is doing its best squeezing milk out of the shriven teats of a very thin cow, the economy. Way forward is by growing the economy. This appears a tall order in light of the reduction in economic growth for this year from five percent to three percent.

Should El Nino and hiccups in the distribution of farm input subsidies lead to food shortage again next year, the stress to the economy will reach tragic proportions. The other challenge is on reducing expenditure. APM seems lost on where to chop. The result is starving patients in hospitals while Ministers are still driving Prados in this Corolla economy. The President himself won’t let go of the Kamuzu mentality which exaggerated presidential security to include having uniformed officers lining the entire route the President has travelled.

Are we serious that ministers and other government officers should continue flying business class or that the president should travel abroad with a legion of assistants and guests while the police are more and more depending on handouts of tyres, fuel for their patrol cars?

Should government raise school fees to prohibitive levels while using taxpayers money to buy cement and iron sheets for rural voters? Setting limits to borrowing and reducing expenditure can be extremely hard if government continues trying to secure longevity of tenure by making expensive social spending pledges, including mswahara.

Finally, what levels of myopia prevents government from noticing that the 30 percent revenue gap emanating from the withdrawal of donor support to recurrent budget can be significantly filled by preventing revenue loss due to corruption and waste? The only pressure point in fighting corruption is that funding for the party in government may also suffer. We have testimonies by Cashgate culprits to thank for this lesson.