Malawi must manage public debt-World Bank

A street in Blantyre Malawi
  • Malawi’s public debt stands at K5.8 trillion

The World Bank has warned that Malawi will lose out on any source of external financing over time if the current state of public debt is not managed to sustainable levels.

The Bank’s country manager Hugh Riddell expressed concern over Malawi’s debt which he indicated has reached unsustainable levels and if left unchecked may prompt external lenders to think twice on lending decisions as that they look at a country’s ability to service debt amid big budget deficits.

Currently the country’s debt stands at K5.8 trillion; about 55 percent of the gross domestic product (GDP).

The recently released Malawi economic monitor (MEM) a publication by the Bank stated that public debt has been growing over time due to overspending against the budget.

It indicated that Malawi’s external and public debts are at high risk of distress with the stock of public and public-guaranteed debt having increased to 59 percent of GDP in 2021 alone, up from 55 percent in 2020.

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Riddell: Gradually Malawi will lose out on any source of external financing

Riddell further cautioned Malawi will lose out on any source of external financing over time if people stop trusting the basic fiscal and debt management systems.

“As an economy you want to show to the outside world that you can manage your fiscal situation sustainably so that you’re not getting endlessly into these deficits that build up and have to be financed with debt. So you know gradually Malawi will lose out on any source of external financing over time.

“If people are not trusting these basic fiscal and debt management systems I think a lot of the emphasis needs to be on debt transparency; so yes, it’s about debt management and managing the fiscus, but it’s also about being transparent about how much debt is coming in what’s it being used for and what is the plan to manage that debt over time”.

He stressed on the need to effectively manage public finance management technologies such as IFMIS which can control commitments made by Ministries.

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An IMF delegation captured in this file photo

“If you have a better system for managing what expenditure you have in the budget and what actual expenditure you’re making in practice that can help limit these fiscal deficits that have built up,” he advised.

Riddell stated the fiscal deficits building up all the time translate into increased debt both domestic as well as foreign.

An International Monetary Fund (IMF) mission which was in Malawi from May 25 to June 3 2022  urged authorities to urgently address debt sustainability and resolve a misreporting case by the previous Peter Mutharika administration to qualify for a new Extended Credit Facility (ECF).

Malawi’s Ministry of Finance and Economic Affairs attributed the country’s rising public debt to lack of scaling down on expenditures when development partners dumped the country following revelations of abuse of resources dubbed Cash-gate in 2013.