LILONGWE-(MaraviPost)-President Lazarus Chakwera’s Tonse government has lost trust in International Monetary Fund (IMF) over appetite for loans that culminated into unstainable debts.
This comes as Chakwera’s Tonse government has its fingers crossed for a possible IMF’s Extended Credit Facility (ECF) programme.
But the fund’s Managing Director Kristalina Georgieva observes that multiple economic crises and unsustainable debts ‘make entry’ into the country difficult.
Speaking in an exclusive interview with CNBC Television in India on Friday, September 9, 2022 Georgieva said she fears for low-income countries like Malawi, which are facing multiple economic crises and unsustainable debts.
“When I look at low income countries, I am really worried. A country like Malawi; no fuel, no food, and yet debt is so unsustainable, makes entry to the IMF more difficult,” she said.
Georgieva then asked big creditors to provide debt relief to countries like Malawi to help them stand on their feet again.
“My message to creditors, especially large creditors like China or the private sector which is even a bigger creditor; you have done a needed job to provide financial resources for growth.
“That is not necessarily bad but in the environment of these shocks, when the debt is not sustainable. Show leadership, move rapidly to provide debt relief to countries so we can help them step up on their feet, so they can grow again and be a viable market for investment,” she said.
However, Minister of Finance Sosten Gwengwe told Daily Times that the country has never defaulted on its debts with international commercial lenders, saying doing so would have adverse effects on the economy.
“We did budget-optimisation and we are okay with creating non-debt instruments to close our financing gap. What is remaining is debt treatment.
“The moment you trigger default, the whole thing is disrupted and our economy is too small to withstand that type of default,” Gwengwe said.
He said the country’s loan portfolio was dominated by regional banks like Afreximbank.
Discussions between the IMF and the government on a fresh ECF programme are expected to resume this month but Gwengwe said they have to agree on the debt treatment element before the meeting takes place.
“They notified us that they were coming but we have to agree on this before we confirm that they are coming. There is no point in having an IMF mission if they cannot accept a debt treatment that does not require the default element.
“There is a standoff on this matter this far. We are continuing to engage in more donor inflows to lessen the debt treatment,” he said.
Economist Milward Tobias told Daily Times that the delays in coming to terms on a new programme for Malawi are worrisome, especially after the local currency was devalued.
Malawi’s debt to rebased Gross Domestic Product (GDP) ratio increased to 56.8 percent as of the end of 2021, a situation feared to pile extra pressure on fiscal space and the economy.
A recent financial statement from the Ministry of Finance and Economic Affairs shows that public debt rose to MK5.8 trillion in December 2021 from MK5.5 trillion in June.
Experts say the country is at a high risk of debt distress and that the central government should work decisively in reversing the situation.
According to the statement from the Treasury, total external debt, however, went down from US$3.59 billion in June 2021 to US$3.44 billion in December 2021 on account of a reduction in commercial debt, largely held by the Reserve Bank of Malawi, from US$823.16 million to US$661.85 million.
