.Debt distress risk high
Debt liabilities are continuing to hold up growth of sub-Saharan economies including Malawi.
According to a recent World Bank report, the region’s economic growth this year will remain slow due to several factors including uncertainty in the global economy.
The report also cites underperformance of the continent’s largest economies, prevailing high inflation and a sharp deceleration of investment growth as contributing factors.
As at December 2022, about 22 countries in the region were either at high risk of; or in actual external debt distress.
The revelation by the Britton Wood institution is coming at a time Malawi has revised its growth prospects owing to the recent Cyclone Freddy which has heavily devastated agriculture production in the southern region.
The disaster has since thwarted earlier projected production estimates for the staple maize and other cash crops such as rice and cotton.
Finance authorities had no option but to make some revisions to the proposed national budget, which has since been approved; arguing the impact of the storm will prevent the country from meeting its projections.
Already the cost of living has risen sharply with fears of a similar trajectory in inflation which, among others, is determined by the availability of maize.
According to World Bank Chief Economist for Africa, Andrew Dabalen, the continent is facing a major setback in its efforts of poverty reduction.
“Weak growth combined with debt vulnerabilities and dismal investment growth risks a lost decade in poverty reduction,” said Dabalen.
According to the global financier, unfavorable global financial conditions have increased borrowing costs and debt service costs in Africa, diverting money from badly needed development investments and threatening macro-fiscal stability.
Finance Minister Sosten Gwengwe indicated that Malawi is not generating enough revenues beyond civil service wages and debt servicing, hence governments continued borrowing.
“As at end- December 2022, Total Public Debt reached K7.90 trillion or 69.93 % of GDP. Out of this stock, K4.43 trillion is domestic debt while K3.47 trillion is external debt,” read Gwengwe’s 2023/24 Budget statement.
“….The pace of borrowing that I have just cited is unsustainable and needs to be curtailed. That can only be done by ensuring that most of our expenditures are met from our domestic resources and we thus need to boost our domestic revenue capacity,” Gwengwe said.
Dabalen has since called on policy makers to increase efforts towards managing factors that are dragging growth.
“Policy makers need to redouble efforts to curb inflation, boost domestic resource mobilization, and enact pro-growth reforms—while continuing to help the poorest households cope with the rising costs of living.”
Economic growth in Sub-Saharan Africa is set to slow from 3.6 % in 2022 to 3.1 % in 2023, according to the latest Africa’s Pulse, the World Bank’s April 2023 economic update for Sub-Saharan Africa.
Cognizant of this expected continued sluggish growth of the economy in the region, the World Bank is also calling on governments to tighten their belts and undertake serious measures towards macroeconomic stability.
“In the face of dampened growth prospects and rising debt levels, African governments must sharpen their focus on macroeconomic stability, domestic revenue mobilization, debt reduction, and productive investments to reduce extreme poverty and boost shared prosperity in the medium to long term”. Recommends the bank.