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World Bank warns on debt

 

The World Bank has warned African governments, including Malawi, to borrow responsibly or risk their public debts reaching unmanageable proportions with the structure changing from concessional to market loans.

Briefing the media from Washington yesterday via teleconference monitored at the World Bank office in Lilongwe, World Bank chief economist for the Africa Region Albert Zeufack said African countries should pay attention to rising public debt as this risked triggering fiscal unsustainability.

He said: “This time around, the structure of debt has changed significantly. It is no longer concessional debt that is leading the way, but countries are now issuing more market and private sector debt.

“This has the consequence of increasing market-related risk and threatening debt sustainability. It is fundamental that while we keep the pace of investment in countries, we borrow responsibly.”

Zeufack: The structure of debt has changed significantly

The World Bank has also warned that the non-traditional means of procuring loans will raise the risk that countries face to refinance the debt in the future as well as exposing countries to vulnerabilities to exchange rate movements and global financial conditions.

The World Bank has attributed the rising debt to high fiscal deficit causing countries such as Malawi to borrow heavily domestically and externally.

The bank’s lead economist and author of the report, Punam Chuhan-Pole, also attributed the rising debt to weak economic growth performance.

She said: “What does this mean for countries moving forward? There has to be a focus on fiscal adjustment and looking at consolidation of expenditure and revenue and a greater focus on prioritisation of expenditure.”

Chuhan-Pole said while debt was not bad, countries needed to enhance domestic tax mobilisation for the kind of spending that citizens expected of their governments.

However, Minister of Finance, Economic Planning and Development Goodall Gondwe has on several occasions defended Malawi’s  debt levels, describing them as manageable.

During the Mid-Year Budget Review Meeting in February this year, the minister said the government’s annual domestic borrowing had declined from K94 billion in 2014/15 down to K37 billion in 2016/17 and to a planned figure of K28 billion in 2017/18.

Presenting a report to Parliament last year on loans incurred since 1964, Gondwe said the current external debt was 23 percent of the gross domestic product (GDP) against the 30 percent recommended for low-income countries.

He attributed the rising domestic debt levels to withdrawal of budgetary support after revelations of Cashgate—the plunder of public resources at Capital Hill—in 2013, implying that the zero-budgetary support policy has not worked as expected.

The World Bank expressed its position in Analysis of the State of African Economies.

In 2013, the bank classified eight African countries as at high risk of debt distress, but the figure has risen to 18 by March 2018.

While Malawi is not among the 18 countries, concerns have been raised about the rising public debt which continues to increase standing at $1.68 billion (about K1.2 trillion) currently.

As Malawi’s budget deficit continues to increase due to poor revenue collection, domestic borrowing stood at K1.1 trillion as of June 30 2017, translating to 25.6 percent of the GDP above the 20 percent accepted levels.

According to Africa’s Pulse, a World Bank bi-annual analysis for April 2018, public debt in relation to GDP Is on the rise in the Africa region and the higher debt burden was raising concerns about debt sustainability.

The Africa’s Pulse report also focused on the role of innovation in accelerating electrification in Sub-Saharan Africa, recommending that a combination of solutions involving the national grid and mini-grids was the way to go if there is to be quality, reliable and affordable electricity.

Zeufack said governments were key as they have to focus on issues of rationalising pricing, reducing regulatory barriers that prevent private sector from investing in power sector and, most importantly, improve efficiency of public utilities such as the Electricity Supply Corporation of Malawi and Electricity Generation Company (Egenco) in the case of Malawi.

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