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The Malawi Economic Justice Network (Mejn) plans to bring together government and some international financing institutions to look at how best Debt Swap—a new debt cancellation initiative—can be utilised.
Mejn National Coordinator Collins Magalasi said in an interview on Tuesday the economic body has had “lengthy discussions” with four international banks, two of whom have expressed willingness to cancel debts if transparency and accountability measures are put in place.
He, however, could not be drawn to disclose the banks, saying doing so would jeopardise the negotiations.
Debt Swap is an initiative that is aimed at convincing lenders to allow government to repay its debts through Non Governmental Organisations (NGOs) who will reschedule the money for development programmes so that social services should not be affected by debt repayments.
The initiative, championed by a Zimbabwean NGO called Mwengo will, if implemented, follow the Highly Indebted Poor Countries (Hipc) initiative rescheduling criteria.
“The two banks have shown interest but they want to be clear on two issues. One, will government meet its obligations, that is, will it be releasing the money to the appointed NGOs? Two, what criteria will be used to choose the best organisation to implement the programmes?
“Government on the other hand says it has no problems with that, saying it is ready to meet its obligations but it is not sure how the financial institutions will accept Debt Swap,” he said.
Added Magalasi: “The next step is to bring the two parties to a meeting whereby solutions to these questions can be found.”
Malawi’s foreign debts have reached unsustainable levels with about K16.7 billion borrowed over the past two years alone.
This year alone, it is projected that about US$45 million will have to be set aside for debt repayment.
Last year, it was projected that US$64 million would be used for debt service.
By 2019, it is estimated that government will be paying foreign debts amounting to US$93 million per year whether the country stops borrowing afresh or not.
Three quarter of this year’s development budget is being financed through borrowing while the remaining fraction is funded through grants. There are a total of 192 projects with government funding only one.
Unfortunately, a big chunk of the funds will only be released if the Malawi government presents a convincing case to the International Monetary Fund (IMF) board that its economy is on track.
Magalasi added that Mejn will also lobby government’s domestic creditors to adopt Debt Swap as one way of contributing to national development.
As at August 2002, local debts amounted to about K8 billion.
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