Malawi borrows $6bn in 52 years

 

Malawi has borrowed about $6 billion from external sources between independence in 1964 and June 30 this year, with a majority of the loans going towards the agriculture sector, according to a Ministry of Finance, Economic Planning and Development report.

Ironically, despite allocating a lion’s share to the agricultural sector, the country continues to experience episodes of food insecurity and dilapidated irrigation schemes.

Moved the motion in June: Lunguzi

Minister of Finance, Economic Planning and Development Goodall Gondwe told Parliament yesterday the current external debt stands at $1.68 billion which he described as sustainable.

The minister presented a public debt status report to Parliament yesterday following a motion which Dedza East member of Parliament Juliana Lunguzi (Malawi Congress Party-MCP) successfully moved in June 2016, asking the minister to provide a list of loans the government acquired since 1964 for the Budget and Finance Committee to analyse.

In his report, Gondwe said government has borrowed externally about $6.1 billion over the past 52 years, the most in the United Democratic Front (UDF) era between 1994 and 2004 where about $1.64 billion was borrowed.

The report, titled Financing Development through External Borrowing, for loans contracted up to 2017 indicate that $690 million was contracted for agriculture and rural development between 1964 and 1993; $171 million between 1994 and 2003, $195 million between 2004 and 2011 and $264 million between 2012 and 2013.

The percentage share of the agriculture loans compared to other loans in the 52-year period ranged from 10.5 percent to 53.4 percent with the highest borrowing done in the administration of former president Joyce Banda between April 2012 and May 2014.

However, Gondwe said he would not attribute issues of politics to ascertain which administration had borrowed the most, but he said the loans had been effective in delivering infrastructure development in Malawi.

He said: “It is worth noting the amount of external debt contracted each era, from 1964 to 2017. But it is not possible for us to say which administration has done better as each era has its own US dollar rate. What is important is how we have used these resources.”

Gondwe said government could not be accused of borrowing irresponsibly because borrowed resources had gone to productive sectors.

“We may have made mistakes but we have limited borrowing to productive sectors. The government has achieved significant infrastructural development. Without borrowing we would not have had the road system that we have now,” he said.

However, an analysis of the country’s debt by the National Smallholder Farmers Association of Malawi (Nasfam) showed that half of the external loans in the past 10 years have been used for financing the agriculture sector in particular irrigation projects with no visible improvements.

The report presented to Parliament indicated that after agriculture, the infrastructure and roads sector enjoyed the next largest share of loans acquired followed by water supply, health then education.

It was only between 2004 and 2011, during the Bingu administration, that the tourism sector enjoyed a 7.7 percent share of the loans contracted but there was none in the preceding administrations.

The tourism loan of $90 million was used for the construction of the five-star hotel and Bingu International Convention Centre.

Gondwe has since defended the levels of public debt, arguing that they still fall within acceptable levels.

The minister also acknowledged that between 1980 and 2006, external debt levels became unsustainable leading to the scrapping off of part of the debt through the Highly Indebted Poor Countries programme.

But in the 11 years since, the external debt has steadily crept upwards standing at $1.4 billion as of June 30 2017, but the minister argued that this remained sustainable in the medium to long term.

“The current state of the external debt is 23 percent of the gross domestic product [GDP] against the 30 percent mark recommended for low income countries like Malawi. I would say the external debt portfolio remains sustainable with moderate debt distress episodes,” he said.

The marginal level of debt against the GDP has been attributed to reduced sources of external loans after several donors opted to provide grants and not loans, such as the United States of America.

Domestic borrowing on the other hand stood at K1.1 trillion as of June 30 2017, translating to 25.6 percent of the GDP which is way above the 20 percent acceptable levels.

Members of Parliament have since asked for more time to scrutinise the report before posing questions to the minister.

Leader of the House Kondwani Nankhumwa has allocated Thursday (tomorrow)for members to ask questions on the report. n

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