Malawi debt stock crawls back to crisis levels
Sunday, May 17 2015: Children’s ward at Kamuzu Central Hospital (KCH) is full to the brim and extraordinarily packed.
A blistering but nauseating odour greets The Nation.
Desperate and seemingly malnourished children—with ages ranging from six months to 12 years—are tenuously gripped by their hopeless parents.
The parents hope that their turn will come and access drugs.
One heart-rending scene occurs: a woman holds a ‘dying’ baby girl by her hands while standing, and surprisingly a drip pierces into her baby’s feeble skin.
A myriad of other village women in the ward sleep on the floor waiting to be attended to and others opt to ‘settle’ in the corridors with their ailing babies just to get a little “fresh oxygen.”
“I have been here with my baby for two days, but the room as you can see is highly congested and not conducive for babies,” said one disgruntled woman Abigelo Makamba, 32, from Chiuzira township, on the outskirts of Lilongwe.
She said she could not afford a private clinic to access medication.
KCH,a referral hospital in the Central Region, accommodates cases from Lilongwe’s surrounding districts and health centres.
Makamba sits among many other vulnerable men and women who are feeling the pinch of poor service delivery in most of Malawi’s public hospitals and other public social amenities.
Ironically, Makamba, just like all other Malawians ought, to have been benefiting from the fruits of the 2006 debt cancellation from its multilateral lenders through quality health services among other services.
–Debt cancellation, euphoria from Malawians–
In September 2006, global multilateral lenders, the International Monetary Fund (IMF) and the World Bank, wrote-off Malawi’s $2.9 billion (K2.9 trillion), which totalled 90 percent of the official foreign debt.
The debt relief meant that Malawi’s debt then stood at $400 million (K179 billion) which represented debts by other institutions that do not participate in the G8 debt cancellation programme.
And representatives of the Paris Club, a group of the leading industrial nations, also met in October 2006, agreeing to cancel a substantial amount of Malawi’s stock of debt.
The initiative saw Malawi’s debt to these countries reduced from $363 million (K169 billion) to $9 million (K4 billion).
Generally, the debt forgiveness brought a new lease of life and it called for a triumphant celebration by the then former president, the late Bingu wa Mutharika, and all Malawians.
The euphoria over the cancellation was just immense and strong indications were that Malawi would be saving an average $110 million (about K50 billion) every year for the next 20 years.
As was the case then, debt cancellation signalled a vibrant victory for the economic policies of t Bingu.
Tellingly, expectations were high that the cancellation of the debt would allow some of the resources to be channelled into social services, improving standards of health and education in the process.
Then, it was estimated that about 30 percent of Malawi’s budget goes on domestic and foreign debt repayment.
Status quo nine years later
Today, it is almost nine years since Malawi basked in the glory of debt cancellation and the situation on the ground is not worth appreciating.
The country still ranks as one of the poorest in the world with its majority still trapped under the callous poverty jaws.
About 15 million people are arguably worse off now after years of democracy than they were under the one-party rule of founding president, Hastings Kamuzu Banda.
This is in sharp contrast to expectations nine years ago that most Malawians would be liberated from poverty.
The fact that by 2015 Malawi is still underdeveloped in most of its key sectors tempts many to conclude that most loans that Malawi has contracted from time immemorial have not been used for intended purposes.
A Lilongwe-based policy analyst, Alex Nkosi, sums up by saying there has been social injustice over the way governments have used the borrowed funds as there is no transparency in both contracting and identifying projects.
Nkosi says citizens have to dig deeper into their depleted pockets now in order to finance for public debt.
And peeping into the country’s public debt situation at the moment, it is clear that the debt stock is also now staggering, nearing to the levels of pre-debt crisis era.
World Bank vividly states that Malawi’s public debt has increased sharply over recent years with servicing costs now close to levels recorded prior to the 2006 debt relief.
The figures from the bank published in its latest fiscal monitor report are astonishing.
Total public and publicly guaranteed debt reached an estimated value of $2.59 billion by the end of 2014.
Such a figure is an equivalent of 69.6 percent of Malawi’s gross domestic product (GDP).
At 69.6 percent of GDP, such a figure is quite high and signals trouble.
“Increases have been driven by growth in both domestic and external debt. Annual debt service costs are now at a value equivalent to 5.3 percent of GDP,” says World Bank.
Let us appreciate the trend: The total value of public debt increased from $1.56 billion in 2012 (equivalent to 49.7 percent of GDP), to $2.38 billion in 2013, and to an estimated $2.59 billion in 2014 (equivalent to 69.6 percent of GDP).
These increases, which reflect growth in both domestic and external debt, have been largely driven by increased recourse to domestic financing in the wake of external financing shortfalls resulting from reductions in foreign grants to government, World Bank muses.
Thus, the suspension of budget aid to Malawi which has in recent years since 2013 created a huge fiscal gap, has exacerbated the debt situation as government recourse to domestic borrowing.
Late last year, government sold domestic debt to Comesa PTA Bank and the deal resulted in a transfer of domestic debt to external debt.
The transaction provided a $250 million cash injection to official resources, and analysts believe that alone resulted in increased levels of confidence in the kwacha while also reducing the cost of debt service.
“However, aggregate debt levels are now approaching those seen prior to the implementation of the debt relief initiative implemented under the Highly Indebted Poor Countries (HIPC) programme,” World Bank boldly says.
