India loans query: Malawi obsessed with lines of credit that don’t deliver full benefit

Malawi, categorized as a ‘third world’ or ‘developing’ country, largely depends on foreign aid and loans to finance development projects and service delivery. Most of the foreign debt is paid with interest in due years with some obligations and conditions.

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Mutharika:Projects financed by foreign loans  must be justified

A Western diplomat in Lilongwe, who preferred anonymity, has confided in Nyasa Times that the age-old tradition of borrowing money from foreign financial institutions has done more harm than good to the Malawi economy and its larger development agenda.

She said once loan funds are obtained, most of them are either diverted to unintended use or actually used to repay other loans, which may have accumulated so much interest.

Justifying the argument, the diplomat said for example, the Government of Malawi, with the full authorization of Parliament, has over the past eight years, borrowed a total of US$156, 500,000 (about MK109 billion today) from the Export and Import Bank of India for various development projects but there is nothing to show for it today.

For  instance, on May 14, 2008, the Malawi Government borrowed US$30,000,000 to finance supply of irrigation, storage, and tobacco threshing plant and for the One Village One Product (OVOP) project.

“On 1st February, 2011, your government borrowed US$50,000,000 for the purpose of Cotton Processing Facilities, Green Belt Initiative, and OVOP. On 13th December 2012, government borrowed US$76,500,000 for development of irrigation network under the Green Belt Initiative and development of fuel storage facilities,” explained the diplomat.

The envoy acknowledged that the construction of fuel storages had taken place although she claimed the construction works were sub-standard.

However, she wondered what exactly OVOP did with all these loans and how much Malawians may have harvested over the years from irrigated land under the Green Belt Initiative.

“Where can we see a tobacco threshing plant and cotton processing facilities? They are not there,” she said.

A treasury official concurred with the diplomat on the minimal impact that the loans have on the intended development projects. He cited the sugar factory in Salima where there is actually no sugarcane when it in fact falls under the Greenbelt Initiative.

“One wonders whether it was indeed worthy spending all that money for the factory or we could have done it for less. There must be cases of fraud taking place in this multi-million Kwacha project and a thorough probe is desirable in these circumstances,” he alleged, also preferring anonymity.

He claimed that the contractor who built the sugar factory in Salima is also part of the group that constructed the abandoned Mangochi Irrigation Scheme.

“Why are we obsessed with lines of credit that don’t deliver full benefit? Can’t we explore borrowing from the African Development Bank (ADB) at lower costs than what we get from the other lines of credit? We should question the pension funds in Malawi – when will they ever be used for development?

“We should question why the grain silos are not being used – they leak. Why should tax payers pay more for maintenance when they will be paying to service the loan? It is time to critically look at some of these facilities,” said the treasury official.

He also observed that the Bingu Stadium, funded through a Chinese loan, would not generate enough money to repay the loan and that Malawians, through taxes, will have to pay for such a “not-so-important facility.”

He concluded that it was surprising that authorities are now talking of a similar stadium project in Blantyre instead  of exploring other most beneficial investments.

“Malawians have a right to demand an audit of these loans? Surely they must do because they are the ones to repay, unless, of course, if they don’t care,”he said.

Speaking when he delivered the State-of- the-National-Address (Sona) last Friday, President Peter Mutharika revealed that the much-touted K600 million Kam’mwamba Coal Fired Power Project will be funded by a loan from the Exim Bank of India.

Given the abuse of $156 million Malawi borrowed from the Exim Bank between 2008 and 2014, economic commentators warn that there is a risk that this project will never be completed, while Malawians will be left with the burden of paying back the loan.

Mutharika, however, said that government will ensure that foreign loans are obtained primarily to finance development projects that are thoroughly appraised and are of strategic importance to the country. He stressed that projects must be justified to be of high rate of return.

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6 years ago

I become very angry when I read these posts – not with the writer or the diplomat – but with the clueless bunch of crooks we call government. They don’t deserve any respect. All they are good at is sleeping in Parliament. Shame! Shame! Shame!

6 years ago

That raises question marks on how mature is out Legislature.They needed to probe any project funded by loans; critiquing all the project elements used for appraising such projects. Monitoring and Evaluation very often lack in these projects leaving more opportunities for diversion of some of those funds.

Jelbin Makamo
Jelbin Makamo
6 years ago

There is a hole in Malawi where all the borrowed and donor money go and that’s corruption but the problem is the culture of impunity that we embraced so badly.

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