Business NewsEditors Pick

‘Debts are eating into shrinking resources’

The United Nations Conference on Trade and Development (Unctad) says foreign debts are eating into an ever-shrinking national resources envelopes for developing countries, including Malawi, who are grappling with global economic shocks.

In a write-up published on their website, Unctad Secretary-General Rebeca Grynspan said during the pandemic, government debt ballooned by almost $2 trillion in more than 100 developing countries (excluding China), as social spending went up while incomes froze due to lockdowns.

Gwengwe: Government is committed

She said: “Now, central banks are raising interest rates, which exacerbates the problem. Rising rates have meant capital flight and currency depreciation in developing economies, as well as increasing borrowing costs. These factors have pushed countries into debt distress.”

Grynspan said in 2021 alone, developing countries paid $400 billion in debt service, more than twice the amount they received in official development aid.

“Meanwhile, their international reserves declined by over $600 billion last year, almost three times what they received in emergency support through the International Monetary Fund (IMF) Special Drawing Rights allocation.

“Foreign debts are, therefore, eating an ever-larger piece of an ever-shrinking national resources pie.”

Treasury figures show that as at end September 2022, Malawi’s total public debt stood at K7.3 trillion, up from K6.38 trillion in March 2022, an increase of 14 percent. 

External and domestic debt accounted for 45 percent (K3.3 trillion) and 55 percent (K4 trillion) of the total debt, respectively. 

As a percentage of GDP, the total debt in nominal terms stands at 64 percent.

Of these debts, Treasury will this financial year pay K33 billion to foreign interests and K612 billion to domestic interests.

In November last year, IMF said Malawi’s debt was sustainable on a forward-looking basis following government’s commitments for a debt-restructuring strategy.

Presently, the IMF is considering Malawi for debt relief alongside 35 other economies, a development analysts say provides hope to the economy.

Minister of Finance and Economic Affairs Sosten Gwengwe told Parliament recently that to deal with the country’s debt sustainability, Treasury is currently engaging its creditors to restructure debts.

The minister also indicated that Treasury is mobilising in the Multi-Donor Trust Fund under the banner Friends of Malawi as well as budget optimisation. 

He said: “Government is committed to bring Malawi’s public and publicly guaranteed external debt back to a moderate risk of debt distress through policy adjustments.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button