16 August 2018

Malawi: India Warns Malawi On Over-Borrowing - Govt Take Loans, Force It On People to Repay Them and Drags National Development Down

Malawi government has been advised by India that it should desist from over borrowing, saying the loans that are being taken will burden the future generation in paying back and drag national development down.

Indian High Commissioner Suresh Kumar Menon gave the advice in Lilongwe, saying loans tend to work against the real development that a country may require.

"What we have seen in Malawi is that when you take loans, you force it on people to repay them and that drags national development down," said Menon.

He was speaking during celebrations marking India's 72nd Independence Anniversary.

India, which is one of Malawi's largest creditors, advised Malawi government to create a conducive environment for Foreign Direct Investment (FDI).

The warning by Indian High Commissioner to Malawi government on accruing more foreign loans has been sounded before by many economists and Parliament's oversight committees such as the Budget and Finance Committee and Public Accounts Committee.

A K1.4 trillion foreign debt for Malawi is almost equal to the 2018/19 national budget, but many have observed that there is nothing to show for the borrowed money.

The Indian government through its Export and Import (Exim) Bank loaned Malawi government $50 million (K37 billion) which it used to purchase 177 tractors that were sold dubiously.

The Exim Bank also loaned the Malawi government $26.5 billion (about K20 billion) which was used to build strategic fuel reserves in the country's three regions, and just recently, the same bank extended a line of credit amounting to $23.5 million (about K17 billion) for the Likhubula Water Supply Project to be implemented by Blantyre Water Board to tap water from Likhubula River in Mulanje Mountain to Blantyre and surrounding districts.

The International Monetary Fund (IMF) has also been advising Malawi government to borrow wisely and that the money should reach its intended purpose.

Malawi seeking to replace declining foreign aid has debt levels creeping up again, which could undermine the country's growth boom.

Economists warn of indebtedness that could undo recent economic gains by the country.

The challenge for government will be to ensure that borrowed funds are invested wisely and not mismanaged.

Treasury declined comment for this story.

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