Why borrowing should be tamed

It is the same old story. That was my reaction to sentiments expressed by World Bank Malawi country manager Greg Toulmin that Malawi needs to improve on governance as well as fight rampant corruption and fiscal indiscipline to restore confidence in the economy.

During the launch of the World Bank’s ninth edition of the Malawi Economic Monitor (MEM) themed Charting A New Course which outlines four inter-related policy directions that the World Bank encourages Malawi to focus on in the short to medium term, Toulmin reminded authorities that weak governance and corruption remain areas of concern to the bank.

The highlighted concerns or issues are not new. The World Bank knows it. The Malawi Government, too, is aware of the same. The problem lies in implementation as there is more talking and less action on the part of local authorities.

Ever rising government borrowing is yet another issue highlighted in the report as well as the panel discussion that followed the launch. For the record, Malawi’s debt stock—total money owed to local and international lenders—stands at a staggering K3.3 trillion, an equivalent of two national budgets of the value of the K1.3 trillion 2018/19 National Budget expiring this June 30.

By way of breakdown, external debt is at $2.1 billion (about K1.6 trillion) while domestic debt stands at $2.2 billion (K1.7 trillion). For a country that in 2006 had 90 percent of its $3 billion foreign debt written off by international lenders, this is a worrying situation.

Under the Highly Indebted Poor Countries (Hipc) initiative, Malawi had about $2.6 billion debt written off only to drift back to heavy indebtedness barely a decade later.

Borrowing itself is not bad as long as it adds value and the debt can be settled within an agreed time without driving the borrower into liquidation and utter ruin.

Since attaining independence from Britain in 1964, Malawi has borrowed extensively to fund capital projects on grounds that the same would benefit the nation. Perhaps it is time to assess the impact some of the projects the borrowed funds were pumped into have had on the economy and on the people of this country.

Every time one queries the sustainability of the growing debt stock fiscal policy authorities are quick to challenge that they are “within the acceptable levels” to sustain the debt. But, if truth be told, before reaching the pre-2006 unsustainable debt levels, Malawi was also in the current position. The perceived positive ratios of debt to gross domestic product (GDP) are merely statistics worked out using a formula which can change any time.

Today, the country struggles to finance its national budget, yet, from the look of things it is business as usual on the expenditure side. This Friday, the new Minister of Finance, Economic Planning and Development Joseph Mwanamvekha will table a provisional three-month national budget.

My humble appeal to the minister is to ensure that, at least for once, expenditure controls are followed to the letter. It should not be the usual more talk and less action if the country is to develop and if the budget is to translate into improving the welfare of the masses. Making drastic cuts to public expenditure, implementing austerity measures to save their people from drowning in the whirlpool of national debt are critical.

It is through ensuring stronger fiscal discipline that the country will be able to reduce high levels of borrowing to maintain fiscal and debt sustainability as well as to increase investment needed to reduce the country’s vulnerability to shocks.

If we are not careful, we run the risk of mortgaging this country and its people to Shylocks who will one day demand their pound of flesh.

Share This Post