17 February 2018

Malawi: Goodall Scoffs At 'Indictment' On Malawi Govt Borrowing - What Debt?

Photo: World Bank

Finister of Finance, Economic Planning and Development Goodall Gondwe has scoffed at the opposition and civil society organisations who criticise the Government for being so indebted.

The opposition argue that the country's borrowing has reached a critical stage as the debts have gone beyond the fiscal policy.

Currently, Malawi is reported to have K2.4 trillion debts both locally and externally as opposition calls on the government to reduce its appetite for debt as the situation is putting citizens at the peril of paying the accumulated arrears generating from the borrowing and also leaving the country operating on a zero budget.

But Gondwe adamantly said when he presented medium-term budget policy statement in Parliament on Friday that although there is huge debt the country has not yet reached the threshold of the international standard which is 50 percent of the Gross Domestic Product (GDP).

"The Government, like most honourable members, strongly believes, that the accumulated domestic debt has to be reduced by repaying some of it and by progressively reducing the annual additions to the domestic debt so that the required ratio of domestic debt to GDP can be reduced from the present ratio of 25 percent to an internationally accepted level of 20 percent," he said.

"We believe that at the rate that the annual borrowing is being reduced, and the rate at which nominal GDP is growing, this ratio can be reached in about three years' time."

The country's purse keeper said the indictment that has been levelled against the Democratic Progresive Party (DPP) government that it has an "appetite" for domestic borrowing does not resonate with the facts, at least since 2014.

"This indictment about the so called 'appetite' for domestic borrowing overlooks the fact that this Government's annual domestic borrowing has steeply declined from K94 billion in 2014/15 down to K37 billion in 2016/17 and to a planned figure of K28 billion in 2017/18. Surely, these figures do not reflect a Government that has an appetite for domestic borrowing," Gondwe enthused.

Gondwe said the rise in domestic borrowing was "cashgate" created problems including the donors' withdrawal of budgetary support that reduced available resources to the budget by 10 percentage points.

"If the country was to continue with an acceptable level of social welfare, recourse to domestic borrowing was necessary to plug the whole. However, through yearly budgetary adjustments, this is being reduced aggressively as demonstrated by the data," he said.

The Finance Minister said another "uncharitable accusation" is that the Government borrows to fund consumption.

He explained that consumption which is synonymous with Recurrent Budget,is completely covered by domestic revenues and designated external grants.

"It follows that the extra available resources from external grants, domestic revenues and borrowing must be funding the Development Budget. That being the case, this indictment that domestic borrowing in Malawi is needed to satisfy the consumption segment of the budget is a falsehood. Without a revenue substitute, a reduction of either external or domestic borrowing will impact negatively on the Development Budget," he said.

But Malawi Congress Party (MCP) member of Parliament (MP) for Lilongwe Mpenu Nkhoma Collins Kajawa I is its that the increasing national debt is affecting the private sector because government borrows a lot from commercial banks where the private sector also borrows which in turn leaves the private sector servicing exorbitant interests.

He, therefore, suggested that the country focuses on borrowing for investment rather than for consumption.

During one of the budget consultation meetings in May last year, Malawi Economic Justice Network (Mejn) executive director Dalitso Kubalasa warned of continued poverty if the country shuns following responsible debt management.

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