Date Of Article: 3/9/2003
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Domestic debt unsustainable, says govt arm
By: Ephraim Munthali
The Department of Economic Planning and Development (DEP&D;) says government’s increasing domestic debt, now pegged at K45 million, is no longer sustainable and has since warned of more damage to the business community if government does not cut the budget deficit “right now”. Studies conducted by the DEP&D; say the cost of servicing domestic debt has risen sharply both as a proportion of government revenue and the Gross Domestic Product (GDP)—the total value of goods and services produced in a country—despite dramatic improvements in revenue collection over the past year. According to the department, servicing domestic debt accounted for 24.7 percent of government revenues and 4.5 percent of GDP by the end of 2002. “The trend is still upwards and clearly unsustainable, even as government revenue collections have improved dramatically over the last year. Cutting the budget deficit is the most critical priority that [the Government of Malawi] must address right now. Whilst the budget deficit persists at the current high and unsustainable levels, then the access to finance and the cost of finance by business will be problematic,” said DEP&D; in its draft strategy paper. DEP&D;, formerly National Economic Council (Nec), is the new government department that has been de-linked from the Ministry of Finance to concentrate on economic planning and development, a responsibility that was in the past ignored in favour of budgeting. The department noted that the continued shortfall in budgetary support due to failure by government to reach an agreement with the International Monetary Fund (IMF) has resulted in the massive and unsustainable increase in domestic debt to finance the ever-increasing expenditures. A number of bilateral donors, including the IMF, are still clinging to about K18 billion due to high level corruption and graft in government, neglecting to fund the poorest and slippages in economic management. Official figures indicate that at the end of 2001, domestic debt was estimated at K21 million, registering a double increase in just one year to K45 million in 2002 Authorities also say that the maize shortage, which has cost government about K7.2 billion, helped to spark the huge appetite for money. DEP&D; added that external debt as a proportion to GDP has increased from 110.2 percent over the period 1990-1999 to 191.4 percent in 2001, reflecting, according to the department, a high and increasing dependence on external financing. A 1999 debt sustainability study confirmed that external debts cannot be sustained as well. This prompted government to apply for debt relief under the Highly Indebted Poor Countries (Hipc) initiative. Malawi qualified for the initiative in 2000 and is expected to receive K1 billion over 20 years from the year 2000. Some economists are worried that the country may not fully benefit from the relieved debt—tipped to help Malawi serve about US$50 million of debt service a year—because of perpetual disagreements with the IMF. But DEP&D; director general Zak Chalira described the remarks in an interview last Wednesday as mere opinions which have no basis, adding that IMF conditionalities have nothing to do with Hipc funds.
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