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As the country struggles to offset the current huge domestic debt, the Japanese government has cancelled part Malawi’s foreign debt amounting to K28 billion.
Japanese Ambassador to Malawi Hiroyuki Ishi said the debt cancellation is a fulfilment of commitment made by his government at the Trade and Development Board (TDB) of the United Nations Conference on Trade and Development, (UNCTAD) in 1978 to grant aid to debt eligible debtor countries in return for payment of official development assistance (ODA) debts.
Ishi was speaking at the signing of the debt cancellation agreement between the governments of Malawi and Japan at Capital Hill in Lilongwe on Thursday.
He said the debt cancellation is also a way of extending financial assistance .
“With effect from the 2003 fiscal year, the Japanese government provides debt relief by writing off the relevant ODA debts owed to the Japan Bank for International Co-operation (JBIC),” he said.
He explained that under the new approach of debt relief, the ODA debts which are currently owed to JBIC, which were eligible for Grant Aid for Relief, will be cancelled as each payment falls due.
But Ishi cautioned the Malawi government to utilise the resources realized in a transparent and accountable manner.
Finance Minister Goodall Gondwe, signing on behalf of government, said the debt relief would be used in specific activities such as improving the quality of education, health care delivery and combating the spread of HIV/Aids.
Gondwe said although Malawi has been receiving debt relief under the Enhanced HIPC Initiative, the country’s external debt will remain unsustainable until 2010 unless creditors provide maximum debt cancellations beyond the current pledges.
“Let me assure you your Excellency that resources freed from debt service to Japan will be used in priority areas in a transparent and accountable manner, as the allocation of public resources, including those released through debt relief, is governed by the Malawi Poverty Reduction Strategy (MPRS) and Malawi Economic Growth Strategy,” said Gondwe.
Gondwe explained that the cancellation of the debt means that Malawi is exempted from the payment of principal and interest maturities, adding 70% of Malawi’s bilateral debt stock has been written off.
“The impact on our budget is that government resources amounting to approximately US$15million will be freed from external debt every year for the next 20 years,” he said.
Gondwe also assured that a monitoring machinery will be put in place including NGO’s to ensure that the poorest of the poor benefit.
“It is not possible these days for government to get away with resources meant for the poor,” said Gondwe.
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