Analysts tip govt on debt restructuring
Economic experts have urged government to engage local commercial and multilateral development banks to ensure the success of its debt restructuring efforts.
But the experts have cautioned that government will face an uphill task to bring the financial institutions on board.
Business Review understands that government is yet to engage in any meaningful discussions with creditors to restructure the country’s sovereign debt, which International Monetary Fund (IMF) data shows has risen to K12.56 trillion or about 76 percent of the country’s gross domestic product (GDP).
Out of this, foreign debt currently stands at about K6.8 trillion and debt restructuring negotiations cover a third of this debt.
A recent report published by the Debt Relief for Green and Inclusive Recovery Project observed that Malawi’s perceived reluctance to engage multilateral development banks is undermining its progress in debt restructuring efforts.
Speaking in an interview on Tuesday, Mzuzu University economist Christopher Mbukwa said the country will remain in debt distress if it cannot include all its creditors in debt restructuring negotiations to contain the rising debt levels that have limited the country’s fiscal space.
He said: “It means we have limited hope to improve our credit rating to low or moderate distress. This will keep our budget exposed to high interest payments.
“The high debt burden means that we cannot increase revenues through borrowing and interest payments are taking up a third of our budget.”
Economics Association of Malawi president Betchani Tchereni said in an interview on Tuesday that it will be a challenge for the government to convince Multilateral Development Banks and local commercial banks to restructure the country’s debt.
He said: “The commercial banks are in businesses that have to break even in every financial year. So, they wouldn’t entertain any restructuring if it exposes them to losses emanating from the time value of money.”
Malawi University of Science and Technology economics lecturer Bertha Bangara-Chikadza urged the Ministry of Finance and Economic Affairs to focus on negotiating lower rates with local commercial creditors.
She said: “For a start, the government should negotiate lower domestic interest rates since domestic debt is rising faster with interest payments also rising.”
Commercial banks hold a significant portion of the total domestic debt stock now at K7.9 trillion.
She said that Malawi can learn from neighbouring Zambia, which became the first country in 2020 to default on its debt payments, by becoming more transparent in its debt restructuring efforts and ending the secrecy surrounding the negotiations.
Reuters reported that in October last year, Zambia reached an agreement in principle with its official commercial creditors.
The agreement proposed to restructure claims on three existing bonds by issuing two new “amortising” bonds in which repayments go towards both interest and principal, maturing in 2035 and 2053 respectively under an economic “base case” scenario.
Minister of Finance and Economic Affairs Simplex Chithyola Banda was not available for comment. But in an earlier interview allayed concerns that delays in debt restructuring negotiations would undermine the country’s push for macroeconomic stability.
In the latest country report, the IMF said Malawi had received specific and credible assurances from the Export-Import Bank of China and the Export-Import Bank of India on the $414 million and $222 million held by the two banks, respectively.
