UN raises hope on tax, debt relief

United Nations Conference on Trade and Development (Unctad) says Malawi continues to perform well on tax reforms and dealing with debt.

In its 2019 Least Developed Countries (LDCs) Report, Unctad said Malawi stands out among nine LDCs in taxation reforms.

Unctad observes that although Malawi’s domestic and external debt in the last five years has increased, the country has managed to reach the Heavily Indebted Poor Countries (Hipc) completion point as at February this year, alongside other 27 LCDs.

A Hipc completion point is a stage at which countries receive full and irrevocable debt reduction provided that they establish a satisfactory track record of good performance, implement key reforms agreed at the decision point and adopt and implement their poverty reduction strategy papers.

Thanks to the Hipc initiative and the Multilateral Debt Relief Initiative (MDRI), Malawi’s external debt stock plunged from $2.97 billion (about K2.1 trillion) as of end 2005 before debt relief to $490 million (about K362 billion) as of December 2006 and was calculated to be $680 million (about K503 billion)as of end 2008.

As a ratio of gross domestic product (GDP), the external debt stock was reduced from 104 percent before debt relief to 14.2 percent in 2006 after the cancellation of the loans.

Reserve Bank of Malawi (RBM) figures show that as at the end of the fourth quarter of 2018, Malawi’s central government debt stock stood at K3.3 trillion, triggered by an upsurge in both domestic and foreign debt.

Of the total debt stock, external debt stood at $2.1 billion (K1.5 trillion), or 29 percent of GDP, representing an increase of $38.6 million  (K28 billion) from the stock recorded in the preceding quarter with debt from multilateral creditors accounting for 80.3 percent of the total debt stock while the remaining share constituted debt from bilateral creditors.

“The public debt stocks of LDCs have generally tracked fluctuations in foreign aid, with a rapid fall in ODA [official development assistance] mirrored by a significant increase in external debt stocks in subsequent years,” reads the report in part.

Economics Association of Malawi (Ecama) president ChikumbutsoKalilombe observed that Hipc relief can enable a country to use the resources released in other sectors of economy to spur growth, but it needs discipline and continued focus.

“Just think of it, a few years ago we had Hipc relief where our debt was written off. Down a few years, we are back to same situation,” he said.

Ministry of Finance, Economic Planning and Development spokesperson Davis Sado said it is too early to comment on the report, but added that  reaching a Hipc completion point means availability of extra resources that could be used on other development programmes.

Hipc initiative is a major international effort targeted at improving developing countries’ debt sustainability.

Launched in 1996 and enhanced in 1999 to broaden and accelerate debt relief, the initiative marked the first time that multilateral, official bilateral and commercial creditors united in a joint effort to cut external debt.