|MEFMI Assists Malawi Conduct a Debt Sustainability Analysis|
Debt sustainability is still a concern for several countries that received debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI). Post HIPCs are still facing large financing needs to meet their development needs. This is despite the significant debt service savings realized from debt cancellation under the two debt relief mechanisms.
The scope for enhancing domestic revenue is limited while foreign aid, which has hitherto been a major source of financing, has been declining over the past few years. Therefore, foreign and domestic debt accumulation remains a key financing strategy for most Governments. However, the economic circumstances of these countries remain highly volatile. At the same time, new external creditors are emerging with semi-concessional or non-concessional terms of lending. In some countries, domestic debt markets are underdeveloped and are dominated by a few instruments and participants, thus posing some risks to domestic debt financing. This scenario implies that Governments have to deal with the practical dilemma of how to design borrowing strategies that match their development objectives with their present and future capacity to pay the resultant debts. It is, therefore, necessary to assess the debt sustainability implications of any borrowing options in order to avoid a recurrence of debt distress while ensuring adequate financing of future growth.
As part of the efforts to ensure that its public debt is sustainable, the Government of Malawi requested MEFMI for technical assistance to conduct a Debt Sustainability Analysis (DSA). The DSA workshop was held from 7 to 13 July 2012 at the Reserve Bank of Malawi (RBM) Club House in Lilongwe, Malawi. This was a follow-up to the DSA workshop that was held in May 2011 and was necessitated by the fact that the macroeconomic policy environment and economic outlook had changed markedly relative to the May 2011 scenario. It was envisaged that the results of the DSA will feed into the review of the Medium Term Debt Management Strategy analysis to be undertaken by the authorities later in 2012. In addition, the workshop aimed at developing the skills of national officials in debt sustainability analysis so as to enhance their capacity to effectively engage the donor/creditor mission teams and in advising policy makers on the long-term borrowing plans and appropriate debt management strategies.
The workshop was attended by 28 participants, drawn from the relevant departments of the Ministry of Finance (MoF), National Statistics Office (NSO), Accountant General’s office, Ministry of Development Planning and Cooperation (MoDPC), and the Reserve Bank of Malawi (RBM). The Deputy Director of Debt and Aid Management in the Ministry of Finance, Mr. Davie Wirima, officially opened the workshop on behalf of the Secretary to the Treasury.
Workshop facilitation was by Mr. Leslie Mkandawire, Ms. Mercy Kumbatira (both from the RBM), Mr. Henry Rotich (MoF, Kenya), Mr. Stanislas Nkhata (MEFMI Programme Officer) and Mr. Raphael Otieno, Director of the MEFMI Debt Management Programme.
On the last day of the workshop, the participants presented the preliminary DSA results to a meeting of senior officials in the Ministry of Finance, National Statistics Office, Accountant General, Ministry of Development Planning and Cooperation, and the Reserve Bank of Malawi. The meeting was chaired by Mr. Randson Mwadiwa, Secretary to the Treasury in the Ministry of Finance. The DSA results showed that Malawi has a low risk of debt distress, implying that public debt is projected to remain sustainable going forward under the baseline macroeconomic scenario. However, the alternative macroeconomic scenario showed that Malawi’s public debt ratios would be significantly higher during the projection period relative to the baseline, reflecting the macroeconomic risks to the country’s public debt sustainability.
Going forward, the workshop participants are expected to prepare a detailed report, summarizing the findings and recommendations of the DSA exercise for consideration by the Malawi authorities.
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