Why Malawians should worry about debt stock

In his 35-page maiden State of the Nation Address (Sona) delivered in Parliament on September 4, President Lazarus Chakwera expressed worry that within a year the country’s debt rose by a whopping K450 billion.

When one considers that the K450 billion borrowed in just under 12 months represents a staggering 60 percent of the K722 billion Provisional Budget Minister of Finance Felix Mlusu tabled in June, Malawians have every reason to get worried.

In total, Malawi’s debt stock stood at K4.1 trillion in June this year, an increase from K3.4 trillion in December 2019. The current debt stock represents 59 percent of the country’s total wealth as measured by nominal gross domestic product (GDP) which is estimated at $7 billion (about K5.2 trillion). >From the debt stock, 57.3 percent represents domestic borrowing and is equivalent to 33 percent of the GDP.

It is worth noting that borrowing is not bad as long as it adds value and the debt can be settled within the agreed period without driving the borrower into liquidation and utter ruin.

In fact, since attaining independence from Britain in 1964, Malawi has borrowed extensively to fund capital projects designed to benefit the nation through accelerated economic activity. Whether the said projects borrowed funds were pumped into have had an impact on the economy and on the people of this country is a story for another day.

For a country that in 2006 had 90 percent of its $3 billion foreign debt written off by international lenders, the current situation—14 years later—is very worrying and alarming. My heart bleeds to see that in just 14 years after Malawi had about $2.6 billion or 90 percent of its foreign debt written off under the Highly Indebted Poor Countries (Hipc) initiative, the country is drifting back to heavy indebtedness.

Every time one queried the sustainability of the growing debt stock fiscal policy authorities have been quick to challenge that they are “within the acceptable levels” to sustain the debt. The perceived positive ratios of debt to GDP are merely statistics worked out using a formula which can change any time. Remember, numbers do not lie, but liars use numbers.

Every patriotic Malawian should be worried with the rising debt stock. Every time one borrows, there is an interest charged to cover the risk of lending as the money borrowed belongs to other investors.

The President indicated that interest charges for the debt are in the region of 36.6 percent of the GDP or the country’s total wealth. What is scary if this isn’t?

To paint a vivid picture of this debt situation, let me quote the President: “In other words, for every K100 we generate [as a country], K36.60 is used to pay interest on the debt that we have accumulated, excluding repayment of actual loan.”

The key statement worth reflecting on is “to pay interest on the debt that we have accumulated, excluding repayment of actual loan”. Put yourself in the shoes of the government and imagine what life would be like if 40 or 50 percent of your household income was used to service debts? Surely, life such a situation is not sustainable.

For this country to move forward, there should be less talk and more action. The budget itself should translate into improving the welfare of the masses, not just a set of figures to impress or confuse people. Making realistic allocations and implementing austerity measures to save people from drowning in the whirlpool of national debt are critical.

Fiscal discipline and ensuring that we cut our cloth according to our size will also be key to manage and reduce high levels of borrowing to maintain fiscal and debt sustainability. When the debt is better managed, a conducive environment will also be created for investment needed to reduce the country’s vulnerability to shocks.

Next time the word “borrowing” comes up, those entrusted with managing the public purse should ask themselves: What are we borrowing for? In that way, we will avoid the risk of mortgaging this country and its people to Shylocks who will one day demand their pound of flesh.