World Bank warns Malawi against piling public debts

Malawi and other developing countries have been strongly advised by the World Bank to focus on key priorities on poverty alleviation and do away with continued heavy borrowing.

World Bank Group president, David Malpass, during a virtual conference on October 15, 2021, called upon poor countries to work out a “gradual path towards consolidated economies.”

Felix Mlusu, Minister of Finance

Malpass pointed out during the conference, held under the theme ‘Growth in a Time of Crisis: What’s Ahead for Developing Economies, that developing nations—including Malawi—were heavily borrowing in the hope that their external loans would be forgiven.

“Time has come to start charting a gradual path towards consolidation,” Malpass said. “One that keeps the welfare of citizens as the guiding principle, enhancing and simplifying tax structures while eliminating wasteful public expenditures.”

According to the World Bank, Malawi’s external debt is at $2.94 billion (about K2.39 billion) as of 2020. Overall, the country’s public debt is at a staggering K4.76 trillion.

Finance Minister Felix Mlusu, who spoke on behalf of low-income countries during the conference, said there was a need for debt relief, saying the main barriers to economic growth included unsustainable high levels of debt.

According to Mlusu, barriers to economic growth were many, beginning with limited fiscal space and that poor countries found it hard to fund their development programs because they were limited by financial resources.

“The other barrier is unsustainable high levels of debt which they have contracted over the last couple of years, and they cannot finance their programs,” Mlusu told the conference’s delegates.

In September, President Lazarus Chakwera also called for debt cancelation for poor countries during the United Nations General Assembly (UNGA).

“To help us poor nations recover from the economic devastation caused by this pandemic [Covid-19], the starting point is three words: Cancel The Debts,” Chakwera said.

Economic experts say that, at K4.76 trillion, public debt accounts for about 54 percent of Malawi’s gross domestic product (GDP).

According to Catholic University of Malawi (CUNIMA)-based economics expert, Hopkins Kawaye, Malawi is embroiled in the present situation chiefly because the money it borrowed was not used for the intended purpose.

“We have not used that money prudently. The K4.76 trillion debt is almost equivalent to three national budgets but look at the development on the ground. The money and the development do not match. This is due to several reasons.

“We have high levels of corruption, and there is high misappropriation of funds, which keeps on crippling the economy and makes the fiscal policy that the government is implementing not to be effective,” Kawaye is quoted as saying in the local press.

In his address, Malpass stressed that the acceleration of Covid-19 vaccinations and eliminating wasteful public expenditure were key to long-term economic growth.

The conference discussed, among others, how countries can build back better while simultaneously investing in their people, what types of policies can support inclusive growth, and what role central banks can play in helping spur job creation and investment.

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Chifundo Ganizani
Chifundo Ganizani
1 month ago

We keep sinking
But still singing
Our idiot politicians and corrupt countrymen, a great thank you to all honourables

Patriot
Patriot
1 month ago

It’s great injustice that ordinary citizens have to pay such a heavy price to enrich the corrupt few.

Anzelu ndi Anzelu
Anzelu ndi Anzelu
1 month ago

Mlusu-conomics is not working at all.

Banda
Banda
1 month ago

Chakwera first year budgets overspent creating huge deficits yet no noticeable difference on the ground because of corruption yet he calls on foreign nations to forgive Malawi foreign loans without he himself cutting back on travel and unnecessary expenses. Domestic debt will be NOT be forgiven even though higher interest rates and doing more harm to the country.

Chisambazi cha kwa Jeremiah

For how long are we going to sign the same old song? It’s illogical and irrational to continue to think that a lender has an obligation to forgive when you don’t clean up your own mess.

Clean Up, Get Up, Stand Up!

Otherwise, one shall always be a slave.

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