World Bank tips Malawi on domestic debt control, job creation

The World Bank says the Malawi Government has potential to move towards creating the conditions for the private sector to increase investment if it can better control domestic debt levels to drive growth and job creation.

The bank’s Country Manager for Malawi, Greg Toulmin, made the remarks in Lilongwe on Thursday at the dissemination of the 10th edition of the Malawi Economic Monitor: Strengthening Human Capital through Nutrition.

The monitor discusses how the Malawi Government has continued to face wide fiscal deficits, largely due to expenditure overruns.

The monitor says, for instance, that recent elections and cyclone related pressures contributed to a fiscal deficit of 6.5 percent of gross domestic product (GDP) in the 2018/19 the financial year.

This was largely financed by domestic debt, which has now exceeded 32 percent of GDP, and total Government debt is over 60 percent of GDP.

Toulmin says there is a question how far such debt levels are sustainable given the high cost of servicing them, and they can also lead to the crowding out of private investment.

He stressed that delivering on this potential would therefore require sustainable fiscal deficits in order to contain and reduce escalating domestic debt burden.

“As we are all aware, Malawi was among the countries that were affected by Tropical Cyclone Idai. However, outside of some areas in the southern region, agricultural activity rebounded from 2018, and the overall growth of the economy is projected to be 4.4 percent in 2019. With sustained growth in agriculture and with energy investments expected to improve electricity availability, economic growth could pick up to 4.8 percent next year and to 5 to5.5 percent thereafter,” he said.

Toulmin said although inflation has remained in single digits; pressures are emerging from increased food prices, further warning that the recent increase in fuel prices could pose an upward risk to average Malawians.

He advised authorities at the Capital Hill to take four key steps if they are to achieve meaningful social and economic transformation for the citizens – majority of whom are currently wallowing in abject poverty.

The steps include strengthening fiscal policy and management to anchor macro-stability, decrease domestic debt, and increase investment; implement policies to unlock the potential of the private sector, and increase investment to increase job opportunities and incomes.

The others are to invest in measures to increase resilience to shocks and invest in human capital development for longer-term growth.

“Government needs to comprehensively change its relations with the private sector, and pro-actively remove blockages to economic transformation both in agriculture and elsewhere. This calls for measures to: simplify business regulations and taxes; ensure higher levels of transparency and predictability in government decisions, and reduce trade inefficiencies and distortions.

“One key measure could be to implement the Control of Goods Act regulations. Government also needs to increase the transparency and predictability of policies for key growth enabling sectors such as ICT; move forward with implementing energy projects; and strengthen the governance and financial performance of sector utilities,” Toulmin emphasised.

In his remarks, the Chief Director in the Ministry of Health and Population, Bestone Chisamile, welcomed the report.

Chisamile said government will critically analyse the tool to see how it can work with development partners to address some of the challenges being cited.

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