LILONGWE-(MaraviPost)-The Malawi government has now over MK3 trillion of local and external debt, a situation which is worrisome considering no meaningful development initiated on the ground.
During the year ending June 30, 2018, domestic debt securities (including Zero Coupon Promissory Notes) was at MK1.497 trillion in the face value.
Of this amount according to the country’s social monitoring body, Centre For Social Concern (CFSC) 38.15% was held by Reserve Bank of Malawi; 24.04% by commercial banks; 12.17% by foreign sector; 11.7% by insurance companies; 5.83% by pension funds and 5.6% by private sector.
With external debt seen at MK1.558 trillion as at December 31 2018, the development means foreign debt has almost tripled over the past five years.
In the past five years, Malawi Parliament has passed a total of 36 loan authorisation bills, giving a go-ahead to government to borrow the money.
Ironically, despite the accelerated government’s borrowing there are little to no progress in some projects that government borrowed money for.
Presenting CFSC’s report on Thursday to Parliamentarians in the capital Lilongwe titled, “Malawi Indebtedness Study: Keeping an eye on the national domestic and foreign debt”, shows that the citizenry do not see the direct and immediate benefit of the loans that government under President Peter Mutharika’s Democratic Progress Party (DPP) is contracting.
Instead critical amenities continue to deteriorate and available resources go to non-productive sectors as in many cases government is found borrowing to pay off previous debts.
“This is especially true in domestic debt, where government is allowed willy-nilly to incur an overdraft which will automatically be converted to Treasury Notes. This is basically the money already spent and in most cases on recurrent expenditure with no physical investments to point at.
“There are loans that were signed between 2010 and 2017 that have either not yet taken off or have delayed being implemented for various reasons. The delays imply very low absorptive capacity of the available loans. Some critical projects that would benefit the citizens including National Cancer Centre Phalombe Hospital and various road networks are being implemented very slowly,” reads part of the CFSC report.
The study therefore draws five key finding attached to debt on projects including diversion of resources to service, monitoring of debt projects sorely done by ministry of finance, debt contraction process not adhered to, ministry departments underfunded and delays in implementation debt projects.
“There is a need for participatory approach to debt contraction, management implementation and monitoring, and decision making for borrowing by authorities should be pro-poor.
“Authorities should as much as possible refrain from contracting loans that will hurt the future generation in terms of loans payments,” recommends CFSC study.
Budget and Finance Committee of Parliament Chairperson Sosten Gwengwe concurred with the study saying there is, indeed, little value to show for our loans and that is why taxpayers keep asking government to slow down on borrowing.
Gwengwe confesses that lawmakers have limited capacity to bar government from borrowing unless the law is revived to deter the trend on excessive debts.
“Best way to get out of borrowing is to work within our means. Stop coming up with populist budgets. Parliamentarians will continue to monitor the trend despite that we are limited to stop government on borrowing as the bills come into Parliament on developmental agenda,” worries Gwengwe.
Tayamika Kanthambi, Minister of Finance’s Assistant Director confessed of escalating debts attributed to arrears incurred for years now.
Kanthambi therefore assured the nation that government is working along the clock to turn the tables on debt before getting out of hands.
She said the debt policy is aligned to Malawi Development Goals Strategy (MDGS III) guarded by International Monitory Funds (IMF).
And presenting the 2019/20 national budget in Lilongwe last week, Finance Minister Joseph Mwanamvekha indicated that government has also earmarked MK2.5 billion for the same project.
Again, in 2016, government borrowed €80 million (about MK65 billion) for the rehabilitation of M1 Road but very little progress has been recorded on the project.
In addition, despite government borrowing 160 million Yuan (MK17 billion) from China for the national fiber in 2016, the project is yet to roll out.
Mwanamvekha however admitted that government is facing challenges in fiscal deficits and public debt.
He noted that, as at end December 2018, government debt stood at 62 percent of gross domestic product (GDP).
“One of the major concerns in Government is the astronomical increase in public debt. For the 2019/20 fiscal budget, payment of interest on the country’s public debt is projected at MK243.9 billion or 3.9 percent of GDP representing 8.8 percent increase from the amount paid during the last financial year.
“Of this total, MK15.5 billion is for foreign interest payment while MK228.5 billion is for domestic interest payment,” Mwanamvekha said.
He said Treasury has put in place policies that would help debt to start declining in the medium to long term.
The finance Minister added that the Medium Term Debt Strategy has outlined measures that will translate into a reduction in domestic debt to 20 percent of GDP by 2023.
“We commend that the loan disbursement report of the previously approved loans be shared with parliament and the civil society organizations that any problems spotted must be addressed in a transparent manner,” urges CFSC Director Fr.James Ngahy.