Malawi government moves to deal with sustainability of MK7.3tn public debt

Minister of Finance and Economic Affairs, Sosten Gwengwe, has said the government devised to deal with public debt sustainability through, among others ways, debt treatment, grant mobilization and budget optimization.

Gwengwe said the government is committed to restore debt sustainability in the medium term and bring Malawi’s public and publicly guaranteed external debt back to a moderate risk of debt distress through policy adjustments.

Finance Minister Sosten Gwengwe

He spoke Friday in Parliament when he presented the 2022/2023 mid-year budget review statement.

According to Gwengwe, as at end  September 2022, Malawi’s total public debt stood at MK7.3 trillion, up from K6.38 trillion in March 2022, which is an increase of 14 percent.

External and domestic debt accounted for 45 percent (K3.3 trillion) and 55 percent (K4.0 trillion) of the total debt, respectively.

Gwengwe said there are three main ways government has devised to deal with debt sustainability.

“Debt treatment; we are currently asking our creditors to restructure our debts and they will be sacrificing and giving up millions of dollars in the Net Present Value haircuts.

“Grant mobilization; the Multi-donor Trust Fund under the banner Friends of Malawi has been set up and donors are mobilizing resources to bail out Malawi.

“Budget optimization; this is dealing with our debt sustainability issue by optimizing our budgets.  Spend prudently and, where possible, cut,” he said.

According to Gwengwe, the rising public debt is on account of several related factors including persistent budget deficits, suspension of budgetary support from development partners and clearing of arrears incurred in previous fiscal years.

He added the country’s debt situation has also been driven by natural economic shocks like the Covid-19 pandemic and cyclones which negatively affect both revenue and expenditure.

“While some of the borrowing was to implement government development projects, more especially recently in 2017 to 2020, authorities accumulated external debt just to ensure a stable exchange rate.

“External borrowing was contracted merely to supplement foreign exchange availability to meet the country’s import requirements, hence supporting consumption.

“Yes, the country managed to keep the exchange rate stable but it was very artificial and in one way or another, it was going to cost the nation because we could not continue borrowing as those borrowed funds would require repayment one day,” he said.

Gwengwe further said, of these debts, the current budget proposes MK33 billion to foreign interests and MK612 billion to domestic interests.

He added, this far, government is keen to address persistent budget deficits, saying year on year authorities aim to reduce debt to GDP ratio, from 8.7% to 7.1% at the end of this financial year.

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