By Kingsley Jassi:
As public debt soars to K16.2 billion, representing 86 percent of the total economy, the government struggles to convince commercial lenders for a relief, posing a risk to the Extended Credit Facility (ECF) programme of the International Monetary Fund (IMF).
The budget statement which Finance Minister Simplex Chithyola Banda presented to Parliament on Friday indicated that despite agreeing in principle with bilateral lenders who gave concessional loans, there is no agreement yet with commercial lenders.
This comes over a year after the government started talks with creditors to secure relief as a key factor in the success of the four-year $175 million ECF, and the IMF has not made any extra loan disbursement since the first tranche in November 2023.
Despite exploring other ways of dealing with the debt, Chithyola Banda indicated that he still hoped for light at the end of the tunnel to ease the pressure on foreign exchange and the fiscal space.
“The most ideal way of dealing with the unsustainable debt is by enhancing the country’s domestic revenue mobilisation to cover government expenditure without recourse to further borrowing, a situation which has not been attained due to the many shocks that this country has experienced, and affected the economic performance negatively,” the statement shows.
In the K8 trillion proposed national budget, interest payment alone takes up K2.17 trillion, which is 8.4 percent of gross domestic product (GDP) and 49.2 percent of total domestic revenue.
While foreign debt service costs exert forex pressure, at K61.2 billion in the next fiscal year, domestic debt interest payment, estimated at K2.11 trillion, raise revenue concerns for the Treasury.
However, nothing seems to slowdown down the Treasury from borrowing, as it plans to borrow K2.47 trillion in the next budget to finance a swelled deficit at 9.5 percent of the GDP.
Malawi Economic Justice Network Executive Director Bertha Phiri has since urged the authorities to ensure that there is a sustainable debt management strategy to deflate the debt burden that ladens the country’s economic efforts.
“We need sustainable debt financing by establishing a clear debt management strategy that prioritises concessional borrowing, timely debt servicing and transparent public debt reporting to prevent fiscal strain and future economic instability,” Phiri said.
She further asked for prudent fiscal management measures by strengthening public financial management, controlling excessive expenditure, improving revenue and collection and ensuring efficient budget execution.
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