By Burnett Munthali
Today I take you through the signs that show that a country is broke.
The bad signs include canceled sales tax holidays, dark street lights, the reappearance of gravel roads, and the elimination of every one of your city’s employees. Most of your neighbors believe social security is mirage.
Now let me take you through what happens when countries go broke.
“When a country is officially in default, all kinds of processes are activated. A government will usually propose a restructuring to the bondholders and make agreements on ‘how to continue’. These agreements depend on the conditions of the bond and the legislation of the country where the bonds are issued.
This is what happens when a country goes bankrupt.
Can we believe from what is happening on the ground that Malawi has gone broke? What are the signs that we should look for when a country is broke?
Lower Standard of Living. Businesses will close resulting in increased unemployment. If people are unemployed and their savings are almost worthless, they will not be able to afford even the necessities of life. This brings us back to the fact that the government will be broke and will not be able to help its citizens.
For sure, the standards of living in Malawi have gone gone down in 2022 as compared to 2020 and 2021. Many businesses have closed down resulting in increased unemployment. Many business investors are trekking from Malawi to Zambia, Mozambique and Tanzania as their next destination where the business environment is conducive there. Some people who were working for those business investors have since lost unemployment and their savings are almost worthless as the cost of living keeps going high, they are not able to afford even the basic needs of life. This brings us back to the point that the government of Malawi is broke and is not able to help its citizens as we speak today.
This is happening because the Malawi Treasury has gone bankrupt through poor governance corruption, over spending and over borrowing.
When A Country Goes Broke.
When a country fails to pay its creditors on time, it is said to go into “default”, the national equivalent of going bankrupt. But sovereign defaults are quite different from business bankruptcies as it is far harder for creditors to repossess the assets of a sovereign entity than to repossess the assets of a company.
Malawi is failing to pay its employees and creditors on time, it is a sign that Malawi government has gone into “default”, the national equivalent of going bankrupt.
In other words, country defaults are quite different from business bankruptcies as it is far harder for creditors to repossess the assets of a government than to repossess the assets of a company or an individual.
This implies that the people who are doing business with the Malawi government are waiting for longer periods of time in order to get paid for their services rendered or goods supplied to government as prices of commodities keep rising thereby making business very difficult for the creditors or suppliers.
This also means that the people who are working for Malawi government have to wait for longer periods of time in order to get their salaries paid for their services rendered to government as prices of commodities keep rising thereby making life very difficult for them.
Now let’s look closely at what happens when a country doesn’t pay its debt.
When countries are unable to pay back on their loans to their creditors then they declare bankruptcy and are then considered defaulted. Most of the sovereign defaults are foreign currency defaults.
Our foreign currency reserves in Malawi are empty right now as we speak. It is difficult for individuals to get forex to travel outside of Malawi for different reasons they may have.
It is also very challenging for business individuals and companies to get foreign exchange and import goods from outside Malawi.
So Malawi is broke.
Disclaimer: The views expressed in the article are those of the author not necessarily of The Maravi Post or Editor