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Malawi Is debt relief a complete solution? |
ECONOMY
Malawi has been receiving substantial debt relief, grants and loans,
from
donor institutions and countries since December 2000. Economic analysts
say the inflow
which had marked an end to almost a year of erratic donor
assistance,
may not help enhance economic and export growth and reduce
poverty
Leading the way were the two main Third World financiers —the World Bank and the International Monetary Fund (IMF) — who in mid-December announced a US $55 million credit for Malawi’s economic reform, and a US $58 million credit for economic and structural reforms.
The two Bretton Woods Institutions, through their soft loans arm, the International Development Agency (IDA), also agreed to support a 20-year US $1 billion debt reduction package for Malawi. This came under the enhanced Heavily Indebted Poor countries (HIPC) Initiative. The HIPC, which is a brainchild of the World Bank and IMF, aims at assisting poor countries like Malawi, to reduce their huge debt to what they call «manageable levels».
The World Bank said that under the HIPC initiative, which replaced the hard biting enhanced Structural Adjustment Programme (ESAP), landlocked Malawi will save an average of US $50 million per year in debt repayments over the next twenty years. The amount represents an equivalent of 2.5% of the country’s annual Gross Domestic Product (GDP).
Strings attached
But the saving is not without a condition. The donors say the country will get full debt relief under HIPC, only if the savings go directly towards reducing poverty among communities. Malawi will be required to physically account for the annual relief funds in its annual budget, but instead of paying the money to its creditors, the money will go towards poverty reduction programmes. The Paris Club of creditor nations, the country’s other major donor grouping, has also rescheduled repayments of US $19 million of Malawi’s bilateral debt, offering the debt-ridden country a repayment holiday for the next six to sixteen years.
Thomas Gibson is the IMF‘s resident representative in Malawi. He observes that Malawi’s difficulties in servicing its debts, indicate problems the country has in using debt relief effectively to ensure growth in exports and in the economy.
Causes for a deteriorating economy
The Malawi Confederation of Chambers of Commerce and Industry (MCCI) is the umbrella organisation of the country’s private sector.
The MCCI blames what it calls «reversals and contradictions» within the government, disregard of professional advice and weak governance, as major causes of the country’s deteriorating economy.
The MCCI‘s president, Jimmy Koreia-Mpasa, also singles out a weak political opposition and overstaffing in foreign missions as other factors behind Malawi’s shrinking economy. Indeed, during the 1999 parliamentary and presidential election campaigns, the opposition parties had castigated the government for keeping more foreign embassies when most developed countries were reducing theirs.
The leadership row between the main opposition Malawi Congress Party (MCP)’s president, Gwanda Chakwamba, and his deputy, John Tembo, which has rocked the once popular party since the death in 1997 of its first president (and also president for life), Hastings Kamuzu Banda, has given birth to two opposing factions within the party. Many observers say the faction which is loyal to Tembo, sympathises with the government and the ruling United Democratic Front (UDF) and the government, both within parliament and outside.
Koreia-Mpasa also blames slowness and lenience in law enforcement and punishment, which he says, sends false signals to offenders who take advantage of the situation to enrich themselves at the tax payers’ expense. He says: «All the above serve to give the impression that Malawians do not seem to be in-charge of their destiny. The situation is now undermining donor aid and investor confidence».
A declining tobacco industry which, in its best years contributed over 85% of the country’s total foreign exchange earnings, is also a major cause of the country’s economic decline.
Foreign investment is slow in arriving
Malawi has achieved little in attracting foreign investors into the country. Productivity in both the private and public sectors has decreased, mainly because of exorbitant interest rates charged by banks. At 75%, the interest rate at the Reserve Bank of Malawi is one of the highest in this part of Africa.
Most of the long staying multi-national companies have either scaled down or halted production, and are resorting to importing products manufactured by their sister companies in neighbouring countries for sale on the local market. All this means local companies are under a tremendous strain, and many may be forced to declare most of their workers redundant.
According a recent issue of The Investor, a quarterly magazine published by the Malawi Investment Promotion Agency (MIPA), Malawi’s imports in the year 2000 were estimated at US $795.1 million, whereas the country exported US $479.5 million worth of goods.
Its major exports include tobacco, tea, groundnuts, sugar and other commodities; petroleum products, iron and steel, electrical and machinery equipment dominate its imports list.
Malawi spends between US $100 million and US $120 million annually on servicing the debts it owes to institutions such as the World Bank, the IMF, the African Development Bank and individual countries, mainly Japan and Malawi’s former colonial master, Britain. Before the debt relief package, the country’s external debts totalled about US $2.6 billion.
Corruption and fraud
Heavy corruption and fraud within government structures have also contributed to the dwindling of the economy. Last year, Parliament’s Public Accounts Committee (PAC) exposed a US $2.3 million fraud in the Ministry of Education alone. Senior officials in the Ministries of Education, Works and Transport, had either pocketed or facilitated payment of millions of kwacha (Malawi’s local currency) to building contractors for the construction of «ghost» schools. In November, President Bakili Muluzi dismissed the Transport and Public Works Minister Brown Mpinganjira, the Education Minister Cassim Chilumpha, and the Labour and Vocational Training Minister, Peter Chupa. The state Anti-Corruption Bureau had implicated the three in the scam.
Although diplomats have praised President Muluzi for his display of solid leadership in fighting the vice, civil rights groups, opposition politicians and other non-governmental organisations feel the scandal could only be a tip of the iceberg. They have appealed to the government to scrutinise the more than two dozen ministries, by engaging independent auditors and improving the country’s law enforcing machinery. They are afraid that any savings made from debt relief could eventually be lost through mass corruption.
But, maybe, all is not lost. Malawi’s present Minister of Finance and Economic Development is Mathews Chikaonda. He says: «All resources saved by debt relief will now be redirected to fighting poverty. I urge all Malawians to work together and help draw up programmes that will help reduce poverty. This should be a collective effort».
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