IMF asks Malawi government to tame domestic debt

The International Monetary Fund (IMF) has asked Malawi to tame its propensity for domestic debt.

The global financial institution made the observation at the end of discussions on the ninth and final review under the Extended Credit Facility (ECF) arrangement.

“The team also underscored the need to clear past arrears, implement expenditure commitment controls to prevent their re-emergence and to safeguard debt sustainability in light of the increase in the level of domestic debt,” reads in part a statement signed by the IMF leader of delegation Oral Williams

Finance Minister Goodall Gondwe recently admitted that domestic debt and arrears are putting pressure on Malawi’s national budget.

“The  high payments of interest on domestic debt is likely to  continue for the next  three years as maturing zero coupon promissory notes are  being converted into interest bearing securities and as the necessary  conversions from low interest securities to high interest securities due to  market dynamics are also being conducted,” said Gondwe.

World Bank country manager Laura Kullenberg once observed that the challenge for Malawi is that unlike external debt which can be written off, domestic debt is unlikely to ever see relief.

“Malawi received substantial external debt relief in 2006 under the Hipc and MDRI [Multilateral Debt Relief Initiatives]. Since that time, debt levels have indeed risen. Borrowing for investment purposes can be a prudent way to achieve sustainable economic growth and poverty reduction,” said Kullenberg.

“Malawi’s current debt burden remains manageable, however, it is rapid growth in domestic debt—rather than external debt—that is beginning to place the country under stress. Domestic debt is unlikely to ever see relief.”

Malawi’s total debt is pegged at around $1.9 billion.