Malawi’s MK6.38 trillion debt: Govt ponders adopting level 1austerity measures


With Malawi’s debt standing at K6.38 trillion from K5.7 trillion last year, Treasury is contemplating implementing level one austerity measures which it warns could be disruptive and drastic.

Finance Minister Sosten Gwengwe hinted discussions are on-going and that the highest level of austerity measures would involve a lot of things such as ban for all travel, managing the numbers in the embassies and well-coordinated recruitments.

Speaking on the state of the country’s economy at a National Youth Conference he lamented that despite migration of employees from salary to pensions every month, the wage bill continues to grow.

“We’re migrating about 300 employees from salary to pensions every month, but you see that our wage bill continues to grow. All those things need to be looked at as concrete level one austerity measures which once discussed and approved, then we should be able to go that drastic route,” he said.

Commenting on Malawi's debt which is described as huge, he said it takes up the space in the budget as government can have good plans but if a good chunk of resources are wasted to debt servicing, then the plans lack funds to implement.

Gwengwe admitted the International Monetary Fund (IMF) does not lend to a country with debt sustainability issues.

IMF headquarters in Washington

“Right now we’ve been trying to do budget optimisation, grant mobilisation but also debt treatment to see that we reach a compromise where we bring in our debt levels to a sustainable level. It is creating a bit of a challenge because most of our debts are with unofficial lenders; the commercial lenders and debt relief from such kind of lenders is a little bit difficult because the money belongs to shareholders, individuals and it’s very difficult for individuals to make a decision to forgive a country like ours.

“That said, we’re still looking at various ways with the IMF to see how best to support Malawi in the current situation and if we have a breakthrough, then we should be able to communicate to the country.

“If it’s gonna take longer because now we’re at a breaking point, then obviously some other plans need to kick in just to salvage the situation where we are although that might not be a priority solution for government,” he said.

The Minister explained the pressure point for now is the acute shortage of foreign currency stating it can be dealt with in two ways; the short term being bringing in liquidity through use of other facilities the Reserve Bank of Malawi has at its disposal.

In the medium to longer term, the real fix is in looking at the country’s exports from agricultural products, manufacturing or mining.

Going forward, Gwengwe indicated debt sustainability can only be achieved up until it’s able to match external loans in dollars and the exports.

Gwengwe: We’re not doing well; we’ve got rampant smuggling of our commodities outside this country

“As a country we’re not doing well; we’ve got rampant smuggling of our commodities outside this country and that is hitting us in terms of our exports figures, so all these things must be done. In the immediate we’re looking at ways of fixing the liquidity issues but more sustainably, we’ll be looking at medium to longer term which really hinges more on exports than anything else”.

Democratic Progressive Party (DPP) legislator Ralph Jooma welcomed the idea of strengthening austerity measures stating Malawi has to live within its means noting the heavy borrowing is killing the economy.

He cautioned the measures must apply uniformly and not selectively stating that if local travel is completely banned and foreign travel allowed three times a year without any limitations, then it’s pointless because those who travel are senior officers.

Jooma: We’re actually in a checkmate situation

In the short term, he observed Malawi is importing twice as much as it exporting which means there has to be international borrowing or authorities asking for grants.

“We’ve already crossed the red line and this is why we’re saying in the short term, maybe we have no way out; we’re actually in a checkmate situation but we have to keep lives as a government so they still have to borrow to support the implementation of the budget.

“Our budget requires 25 percent of it to be supported by forex because we need to buy drugs, we need to buy farm inputs and we need to buy fuel; so what can we do? But in the long run, we have to look at ways of generating our own forex by intensifying exports,” he said.