Treasury says it is cautious about tapping into the International Monetary Fund’s (IMF) loan facility.
Treasury spokesperson Williams Banda said this on yesterday in view of the newly announced IMF policy reforms and funding packages which seeks to support recovery of low income countries (LICs), including Malawi, from the Covid-19 pandemic.
The reforms, approved by the IMF’s Executive Board last week, will ensure that the fund support LICs financing needs and recovery during the pandemic while providing concessional loans at zero interest rates.
But Banda said for Malawi to tap into these facilities, it will depend on its capacity to repay.
He said: “Debt is high and Malawi may soon become vulnerable. So any future borrowing will have to be carefully analysed and will depend on infrastructure development priorities.”
“We are where we are in terms of public debt because of tapping into any available loan facility on offer without necessarily taking a thorough review of why the borrowing should be done.”
But Banda said government is now cautious with any loan provision that arises as the country is in dire debt stress.
He said: “We know that the IMF borrowing comes in the form of balance of payment support to the central bank. It does not come in as budget support that, as a government, we can use to finance infrastructure projects. It is to support the national payments system.”
According to the IMF, the centerpiece of the approved policy reforms is a 45 percent increase in the normal limits on access to concessional financing, coupled with the elimination of hard limits on access for the poorest countries.
Said the IMF in a statement: “These higher access limits will facilitate the provision of more concessional support to LICs with strong policies and large balance of payments needs.”
The global lender also approved a two-stage funding strategy to cover the cost of pandemic-related concessional lending and support the sustainability of the Poverty Reduction and Growth Trust.
Minister of Finance Felix Mlusu earlier indicated that government was struggling to repay public debt stock and reached out to the donor community for budget support and debt restructuring.
He indicated that government was experiencing an additional urgent balance of payments need arising from the intensification of the Covid-19 pandemic’s economic impact on Malawi and requested for temporary debt service reforms from official bilateral creditors.
Projections by the IMF indicate that Malawi’s debt stock will hit 78 percent of the country’s total wealth as measured by nominal gross domestic product in 2021.
The projected proportion of the country’s debt stock to the total national income would probably be the highest ratio, 14 years after Malawi had about $2.6 billion (about K2 trillion) or 90 percent of its external debt written off under the Heavily Indebted Poor Countries Initiative in 2006.
Earlier, Malawi University of Business and Applied Sciences associate professor of economics BetchaniTcherenisaid government needs to guard the debt which he has become dangerous for the macroeconomic environment.
He said: “Government business should not be crippled by excessive borrowing. While efforts to curb inflation are underway from the monetary authorities, it is important that the fiscal angle of the economic cluster need to do its part too.”