The International Monetary Fund (IMF) has warned of debt distress if the country is not careful of how it is managing its borrowing.
IMF has since advised the authorities to closely monitor debt dynamics if the country’s economy is to stabilize. Recent studies have placed Malawi among countries, where debt is rising to risky levels.
IMF Resident Representative to Malawi, Jack Ree, said the fund’s latest debt sustainability assessment has rated Malawi as a moderate debt risk country.
“A big part of this is to ensure that public debt remains sustainable and is deployed for good use. It would also require guarding against the risk of an over-building and ensuring that the debt is deployed to good uses,” he said.
Ree further said there is need to factor in recurrence of shocks, resulting from climate change.
“Unfortunately, climate change is a global phenomenon, which is here to stay. Unfortunately, Malawi is very vulnerable as the economy is too dependent on rains, both for agricultural production and power generation,” he said.
He said this raises need to invest in irrigation facilities and developing alternative power generation sources.
“Also, the macro economy still lacks resilience to shocks as, we still have not built a comfortable cushion to absorb them. Specifically, we need to build fiscal space, including by putting a lid on the public debt,” Ree said.
But, the Minister responsible for Finance, Economic Planning and Development, Goodall Gondwe remains optimistic recently indicating that the government will achieve debt reduction by, among others, reducing borrowing.
He said, going forward, it would be critical for the government to manage fiscal policy prudently to consolidate gains made.