Ministry of Finance has admitted that the country is on the verge of debt distress and requires urgent debt restructuring to create some fiscal space to avert a potential crisis.
In an interview on Wednesday, Secretary to the Treasury Chauncy Simwaka said the debt to revenue ratio is high, meaning that the country has a lot of debt against domestic revenue.
He said this in the context of the Debt Retirement Fund, which is in the pipeline to help retire short-term debt to create fiscal space.
Simwaka said: “Knowing that we are in debt distress, we are now starting to rewind our debt stock by the Debt Retirement Fund which will be created for the retirement of short-term debt instead of rolling to the next financial year.
“We will not stop borrowing, we will continue to borrow, but at lower rate compared to the previous years, specifically for investments. What we will be doing is to broaden the tax base to mobilise revenue for investment rather than borrowing for expenditures.”
Simwaka said the fund will be included in the reviewed Public Finance Management Act.
“With the creation of the fund, we will have the legal mandate to draw resources elsewhere to populate the fund,” he said.
Reserve Bank of Malawi figures show that total public debt stock was recorded at K4.8 trillion or 54 percent of gross domestic product (GDP) as at December 31 2020.
In the 2021/22 National Budget, the planned deficit is pegged at K723.8 billion.
Budget and Finance Committee of Parliament chairperson Gladys Ganda said budget deficits are a sign of a poor public finance management.
“The country’s public expenditure and financial accountability score remains low in some key indicators as recorded in 2018,” she said.
While describing the intention to establish the fund as plausible, economist Milward Tobias, who is executive director for Centre for Consultancy and Research, said government has not demonstrated capacity to retire debt.
He said the country has failed to realise value for money from debt contracted over the years because the loans were merely used for consumption