External debt under scrutiny

Half of the loans Malawi has borrowed externally in the past 10 years have been used for financing the agriculture sector which, nevertheless, has continued to perform poorly, an analysis has shown.

The National Smallholder Farmers Association of Malawi (Nasfam), in its analysis of the country’s debt stock, has since called for a joint Parliament and civil society organisations (CSOs) forum to review the modalities for obtaining loans and how they can be utilised.

The report, titled Malawi Agricultural Debt: Status and Implications for Agricultural Growth and Development, has found that about $785 million (about K575 billion) out of the $1.7896 billion (K1.3 trillion) foreign debt by 2016 has been invested in the agriculture sector over the past 10 years.

Conducted between March 2 and May 31 2017 by public policy analyst Humphrey Mdyetseni and monitoring and evaluation expert Alick Kafunda as independent consultants, the study also found that funding to the agriculture sector was predominantly loans, especially to irrigation.

Reads the study report: “Loans have accounted for more than 50 percent of the funding to agriculture with irrigation and water development taking up the largest share of the loans with about 50; agricultural infrastructure development loans were second largest [32 percent] while fisheries and climate change accounted for less than three percent.”

Nasfam stressed the need for reduction of debt as well as redesigning of irrigation projects for greater impact.

The government continues to borrow heavily for the sector as evidenced by the 2017/18 allocation to agriculture of which 33 percent of the K109 billion approved by Parliament are loans.

The loans in the current budget include $4.5 million for the Mzimba Integrated Urban Water and Sanitation project, $5 million for the Small Farms Irrigation Project – Phase II (SFIP II), $1.1 million for upgrading of Chitipa Water Supply, all procured from the Arab Bank for Economic Development in Africa (Badea).

Loans for irrigation projects alone in the current budget amount to $16 million while $33 million is for other agriculture projects.

During the presentation of the findings, Nasfam head of policy and communications Beatrice Makwenda said there was need for government to borrow based on developmental priorities.

While not faulting the high levels of borrowing for irrigation projects, she said these should have been properly designed based on feasibility assessments and linked to agribusiness opportunities so that money generated is also directed towards maintenance.

Makwenda said going by the growing levels of public debt, 133.7 percent since the 2006 debt relief, the role of CSOs is critical in holding government accountable in delivering the intended purposes but also to ensure that the processes are as inclusive, transparent and credible.

“The government should contribute to the economic growth of a nation and provide the best agri-preneurial opportunities to reduce the debt burden,” she said.

Makwenda added that huge debt servicing diverts funds from priority areas and there was need for mechanisms to invest in priority areas.

In his contribution, Joseph ChidantiMalunga, chairperson of the Parliamentary Committee on Agriculture and Natural Resources, said the growing public debt has been a concern of the Legislature.

In irrigation, the legislator mentioned three schemes—Khwisa in Balaka, Muona in Nsanje and Lweya in Nkhata Bay, which were constructed with loans but the community is no longer benefitting.

But Minister of Finance, Economic Planning and Development Goodall Gondwehas said what is important is to use the money productively and that loans should not be too costly.

“We have been congratulated worldwide for borrowing at low rates. Domestic borrowing is expensive and we are trying to cut that but borrowing from outside, if concessional, is not bad provided it produces economic growth,” the minister said at the signing of a 20.5 million euro (K16 billion) loan with the European Investment Bank (EIB) in support of the Northern Region Water Board (NRWB) water efficiency project.

The Nasfam study found that since 2005, the highest funded project in agriculture has been the Irrigation, Rural, Livelihood and Agricultural Development (Irlad) project where about $130 million has been spent for the construction and maintenance of irrigation schemes and capacity building.

Between 2005 and 2015, the government has borrowed an estimated amount of $322 million has been spent on the key investment projects in irrigation representing 18 percent of the total national debt stock.

The government has come under criticism from economic commentators and opposition parties over what they described as unsustainable public borrowing.

According to the 2017/18 draft financial statement, as at end December 2016, total public debt amounted to K2 trillion, accounting for 53.5 percent of the GDP of which $1.7896 billion (K1276.0 billion) was foreign debt and K806.2 billion or 20.7 percent of GDP was domestic debt.

In September 2006, multilateral lending institutions wrote off Malawi’s $2.9 billion external debts, a development that freed the country’s annual debt servicing to poverty reduction activities.

Following the cancellation of the debt under the Highly Indebted Poor Counctries (Hipc) initiative, the country remained with $400 million as external debt, largely borrowed from the Kuwait Fund, Arab Bank for Economic Development in Africa (Badea), Organisation of Petroleum Exporting Countries (Opec) and South Africa.