LILONGWE-(MaraviPost)-It is no longer a secret that Malawi’s total outstanding external debt has surpassed the country’s 2018/19 total budget.

According to the country’s financial statements as of end December 2017, the total public debt amounted to MK2.7 trillion. This accounted for 55 percent of Gross Domestic Product (GDP) with External Debt accounting for 29 percent (MK1.466 trillion1) and Domestic Debt accounting for 26 percent (K1.285 trillion) of GDP.

The top five external creditors include the World Bank, presented as the International Development Association (IDA), the African Development Bank, the International Monetary Fund, the People’s Republic of China and India.

While the IDA remains the largest creditor, bilateral donors India and China have increased their loans to the country in recent years.

Malawi also owes PTA Bank $242 million as at December 31 2017, a loan the Ministry of Finance has not indicated in the 2018/19 financial statement.

It is highly likely that the overall external debt is higher than what has been publicly declared by the government.

In addition, the 2018/2019 budget has a proposed expenditure of MK1.504 trillion against proposed revenues and grants of K1.261 trillion, meaning the budget has a built-in fiscal deficit of MK242.86 billion.

This deficit is 32 percent higher than last year’s fiscal deficit of MK183.621 billion. The government has proposed to pay for this deficit by borrowing.

Although foreign borrowing declined by MK86 billion, or 56 percent, net domestic borrowing is projected to increase by an unprecedented 474 percent from K30 billion revised at the mid-year to K176 billion. This is worrisome because the debt is growing faster at a rate many times the rate of revenue and economic growth.

In the 2018/19 financial year, the Malawi government will spend a projected K183 billion (3.4 percent of GDP) as interest payments for the debts. Of this amount, MK14.3 billion is for foreign interest while MK168.6 billion is for domestic interest.

This high level of expenditure on domestic debt service has implications for government expenditure on social and productive sectors. The high interest repayments attracted by the huge debts are eroding the national budget.

The proposed allocation for debt payment equals the combined share of the economic and social sectors including Ministries of Agriculture, Health and Education.

Reducing the accumulation of new debt will free up resources to enable the government to increase expenditure on social and productive sectors in the medium to long term.

Economic commentators have since warned that the country is at risk of debt distress.

Malawi Congress Party Member of Parliament Alexander Kusamba Dzonzi confirmed the Daily Times that the country’s debt is more than the budget.

“This is very true. That is why [Minister of Finance] Goodall [Gondwe] has never produced a balance sheet for the budget because he does not want Malawians to know the magnitude of the government’s fiscal mismanagement. With public debt more than our revenue budget, it means we are insolvent as a country,” Dzonzi said

But Treasury spokesperson Davis Saddo played down the fears saying government is able to service its debts.

“Most of the loans that government is getting are concessional and not commercial. Their interest rates are softer compared to commercial loans,” Saddo said.

He, however, said any government loan is meant for development and before government is acquiring any loan it is first discussed in Parliament.