The rising external debt is costing Treasury more in debt service, as the Reserve Bank of Malawi (RBM) figures show a 279 percent increase in the past five years.
RBM data shows that in 2021 alone, Treasury paid K91 billion in external debt service, a rise from K71 billion paid in the previous year.
The figures further show that in 2019, Treasury paid K50 billion in debt service from K32 billion in 2018. In 2017, Treasury paid K24 billion to service the debt.
During the five-year period, external debt has increased from K1.5 trillion in 2017 to K2.8 trillion in 2021, the figures show.
Of the K2.8 trillion external debt, K1.9 trillion was owed to multilaterals, K368 billion to bilateral while K540 billion was commercial loans.
The K91 billion required in a given period to pay for the interest expense and principal of an existing loan is enough to cover the K52 billion energy sector budget and K45.13 billion for local councils’ development.
In his 2022/23 National Budget Statement presented in Parliament in February, Minister of Finance and Economic Affairs Sosten Gwengwe told Parliament that debt management will be at the centre of this fiscal year’s budget implementation.
He acknowledged that high level of external debt is a matter of concern and particular attention will be paid to make external debt sustainable.
Gwengwe said Treasury will maintain a policy of concessional borrowing, preferring grants and only under exceptional circumstances contract non-concessional loans for high-value investments.
“Government will engage its external creditors to restructure some of the loans,” he said.
In an interview yesterday, Malawi University of Business and Applied Sciences associate professor of economics Betchani Tchereni said while foreign exchange is spent to service the debt, other important projects may be under funded in the process.
He said: “More resources are, therefore, channelled towards repayment of the debt, leaving our other important activities such as encouragement of the manufacturing industry, roads, schools and health facilities.
“Government continued to borrow deeper and loans become even more expensive for other economic agents such as investors.”
The World Bank also warned that Malawi risks losing external debt opportunities unless it swiftly undertakes debt management, sustainability and transparency measures to avoid losing credit-worthiness.
Treasury figures show that as at December 31 2021, total public debt stock stood at K5.8 trillion or roughly 56 percent of the gross domestic product, with K2.8 trillion being external debt and K3.04 trillion domestic debt.