Centre for Social Concern

Analysis of Malawi’s National Debt

12/1/2012

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“The Debt cancellation we received some time ago should have made us more prudent in how we

borrow money. This Mr. Speaker, Sir, is not in an effort to undermine government by borrowing like we

doing this time, but we should be able to focus, if we borrow at this rate this point in time, what will

happen in the next years, what will happen in the next ten years, what are our development goals”

Hon Dr. Chiwaya (UDF-Mangochi Central)

(42nd Session of National Assembly, January 2010-December 2011)

“I May wish to seek some clarification specifically on the details of the loan in terms of accessibility of

the loan. May the minister shed some light as to the nature of access; is this $50 million going to be

accessed at once or is it spread out in terms of installments; and how many installments are we talking

about and how long is the period during which this loan will be full accessed. I think this is important.”

Hon Khwauli Msiska (AFORD-Karonga Nyungwe)

(42nd Session of National Assembly, January 2010-December 2011)

“We, would, also as our colleagues from the MCP have pointed out, want to request that this House be appraised as to some of the agreements which you as Minister has entered into on behalf of the Government of Malawi. Can we, for instance have those agreements presented to one of our Parliamentary Committees for example, Budget and Finance Committee? I am pointing this out, Mr. Speaker, because we have an interest to find out some of the possible interest repayments which will be factored in and any conditions which will be associated with any agreements which will be reached by the Minister of Finance and International Banks. Can we be assured, for instance, Mr. Speaker, through you that Malawian companies will be considered in the supply of the goods and services indicated in the bill? We would want this money to benefit our local businesses and of course in a fair and transparent manner.”

(Hon UDF Spokesperson on Finance (Hon Muluzi))

(42nd Session of National Assembly, January 2010-December 2011)

In practice, Parliament has never refused authorisation of a loan proposal. Although it grants authorisation, Parliament has no role in monitoring the implementation of loan-funded projects.

(AFRODAD, The Loan Contraction Process in Africa-Making Loans work for the poor: the Case of Malawi)

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Contents Introduction ................................................................................................................................................. 5

Terms of Reference for the study ............................................................................................................... 5

Specific Study Objectives ............................................................................................................................ 6

Study Methodology ..................................................................................................................................... 6

Study Findings ............................................................................................................................................. 7

Study Recommendations ............................................................................................................................ 8

Study Limitations and challenges .............................................................................................................. 9

Malawi’s Socio-economic and development indicators ........................................................................... 9

History of Malawi’s National Debt ........................................................................................................... 10

Post Independence to Debt Relief ........................................................................................................ 10

Rationale for Contracting the Loans: 1964 to 2005 ........................................................................... 11

Debt Contraction and Oversight Mechanism: 1964 to 2005.............................................................. 11

Post Debt Relief to 2012 ....................................................................................................................... 12

Composition of the Public Debt ............................................................................................................ 13

Composition of Malawi’s Bilateral Debt .............................................................................................. 14

Composition of external debt by currency .......................................................................................... 15

Domestic Debt Portfolio ........................................................................................................................ 15

The IMF Loans: The Extended Credit Facilities (ECF) ............................................................................ 17

What triggered Malawi to contract the IMF ECF Loans ..................................................................... 19

Importance of IMF ECF Loans to Malawi ............................................................................................. 19

Loans Accrued 2009-2012 ........................................................................................................................ 20

The Loan Contraction process ................................................................................................................ 21

Legal and Policy framework for loan contraction and monitoring ......................................................... 21

Alignment of the Loans contracted to the MGDS and Poverty Reduction ................................................. 23

Conclusion ................................................................................................................................................... 25

Table of Annexes ......................................................................................................................................... 26

Annex 1: Loans Approved by Parliament 2010 to 2012 .................................................................... 26

Annex 2: Details and Purpose of External Loan Instruments contracted by 2012 ............................ 27

Annex 3: List of active loans with the World Bank ............................................................................. 28

Annex 4: List of Active Loans with the IMF ......................................................................................... 30

Bibliography and References ................................................................................................................... 32

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Table 1: Tobacco sales 2009-2012 .................................................................................................................................. 9

Table 2: Disbursement of Outstanding Debt by Use of Funds (% of DOD) .................................................... 11

Table 3: Loans approved by National Assembly 2010 to 2012 .......................................................................... 19

Figure 1: Total Public external debt stock 2005-2012 .......................................................................................... 12

Figure 2: Composition of Malawi's Public debt ......................................................................................................... 13

Figure 3: Multilateral Debt by Creditor by June 2012 ............................................................................................ 13

Figure 4: Composition of Malawi's bilateral debt stock ........................................................................................ 14

Figure 5: External Debt by Currency ............................................................................................................................. 15

Figure 6: Composition of the domestic debt .............................................................................................................. 16

Figure 7: Allocation of loans per sector ........................................................................................................................ 18

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Introduction This report is an analysis of Malawi’s National Debt after Debt Relief granted in 2006 to

date with emphasis on debts accumulated between 2008/2009 and 2012/2013 fiscal

years. National debt in Malawi comprises public (Central Government, Local Government,

Parastatal corporations, Reserve Bank) and private liabilities. National Debt is incurred and

repaid by the Government of Malawi on behalf of the Malawian people. The study was

commissioned by the Centre for Social Concern (CfSC), a faith-based organisation that was

set up in 2001 as a project of the Missionaries of Africa (White Fathers) to promote

research and action on social issues, linking the Christian faith and social justice. The CfSC

aims at transforming the unjust structures in Malawian society through research and

advocacy so as to ensure sustained change in policies for the betterment of all in line with

their human dignity. CfSC is currently implementing its 2011/13 Strategic Plan which has

three thematic areas, namely, Governance, Social Conditions, and Human and Social Capital

and advocacy around Malawi’s national debt forms part of the thematic areas.

This need for study evolves from the acute need for analysis of and the need to understand

a rights-based approach to public resource management monitoring. The end goal is to

inform CfSC’s advocacy call for more transparency and inclusiveness in the debt

contraction process, management and monitoring of projects financed from public debt

with the view of curbing corruption and improving accountability. The study provides

information on the public debt stock by providing detailed debt data and profile.

Terms of Reference for the study The Terms of Reference for the study included the following although not limited to:

Identify, assemble and select all the available key reports and reference documents

relevant for the desk review of key documents including government and donor

policy on debt

Collect and analyse data on debt for the after Debt Relief

Examine the types of debt contracted and the projects for which the debt was

contracted and the progress of the projects

Examine resources, if any, that are lost through poor expenditure management in

relation to the purpose of the debt contracted and to analyse what such funds would

have done properly managed

Assess current debt expenditure management and oversight mechanisms and make

recommendation for improvement where necessary

Analyse any poverty statistics caused by poor debt management by the government.

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Assess information on accountability and transparency of the debt contraction and

management.

Provide practical conclusions and recommendations that CFSC can use in its lobby

work with key policy makers such as Cabinet, Parliament, Private Sector and

Development Partners;

Incorporate all comments made at the validation workshop into the report;

Specific Study Objectives The specific study objectives included; although not limited to the following elements:

1. To determine the percentage of the debt in relation to the total national budget

2. To analyse the amount allocated to individual units/departments in relation to the

amount of funds that the units actually require to achieve its implementation

goals/strategies.

3. To assess the debt contraction process in Malawi

4. To assess the status of the presented debt in terms of project implementation

monitoring and debt management.

5. To review the burden of debt for individual Malawians

6. To analyse if the stated funds that were actually given to the projects

implementation to the amount that was contracted.

7. To analyse if the stated modalities of disbursement of the funds from national to

projects, management of funds and its effect on development.

8. To assess the performance of the debts contracted in the past three years.

Study Methodology The methodology used in this study included use of secondary data in which several

literature pertaining to Malawi’s National Debt were reviewed. There was also

documentary analysis in which debt data including policy and legal framework was

analyzed and synthesized.

There was also some field study in which a few members from the Debt and Aid

Department were interviewed to triangulate with the information gathered through

literature review. Phone calls were also made to places where some of the loan funds are

being utilized to check on progress of projects.

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Study Findings On External Debt

Much as the Debt and Aid Department is doing good job to keep data and information on

debt and aid, it is still difficult to come by the information as some of it is scattered around

and at times figures do not tarry.

As of June 2012 Malawi’s public debt reached U$1.97 billion dollars of which US$1,108

billion is external, $818 million domestic and $9,080,000 commercial

57.3% of the external debt is owed to multilateral institutions, of which 37% is owed to IDA,

21% to ADF and 18% is to the IMF. The current external debt pattern has not changed much

compared prior to debt relief in 2006 in which the biggest share of the debt (88.4%) was

owed to multilateral, a smaller percentage (11.5%) to bilateral creditors and the least share

was owed to commercial banks (0.1%).

Out of the current 49 active loans, 16 of them representing 34% are allocated to

infrastructure development; 8 representing 17% to agriculture development; 5

representing 11% are owed the IMF (ECF); 4 of them representing 8% are allocated to

Balance of Payment & Line of credit; another 4 are allocated to Water development

representing 8%; 3 each representing 6% are allocated to education, health and rural

development and while parastals (Air Malawi and Escom) have 2 representing a 4% share.

In line with the MGDS, 77% of the loans have been allocated to MGDS priorities-these are

Health 6%), Education (6%), Water Development (8%), Rural Development (6%),

Agriculture (17) and Infrastructure development (34%)

53% of bilateral debt is owed to the People’s Republic of China, while 25% to India and 14%

to Kuwait while 3% to France and 1% to Belgium.

3.7% of total external debt is due in 2012; the remaining 96.3% of the external debts are

due in 2014 and 2018. Most of these are those owed to Mainland China, India and the IMF.

Government plans to procure concessional loans to repay the maturing ones and then role

them over for the next 40 years.

According to the Malawi government, Malawi’s external debt is sustainable in that there are

fewer risks foreseen in servicing the debt. The only risks are that the maturing debt may be

exposed to interest increases if resources are not available to redeem it and, thus, it has to

be rolled over; the floatation of the kwacha may mean paying more Malawi Kwacha to the

dollar then

On Domestic Debt

Domestic debt has accumulated as a result of government borrowing to finance recurrent

costs after donor aid cuts and poor trade performance at the international markets

resulting in negative current account balance especially during the stand-off period with

both the IMF and CABS donors from 2009 to 2011

80% of domestic debt is in the form of Treasury Bills with short term maturity period a

thing that would force government to keep on borrowing more to service maturing loans

Domestic debt servicing poses the biggest risk to debt management due to interest rate

fluctuations especially on the 82% of the debt whose terms of contracting are unfixed

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meaning that they can change with changing domestic interest rates. Because the

government will not be able to service most of the 82% domestic debt, it plans to roll over

the debt to make the debt servicing manageable.

Study Recommendations As most of the loans (34%) are allocated to infrastructure development, government should

see to it that the funds are used for the intended purpose and the projects are completed on

time and also that only qualifying contractors are given the tender for the work.

Civil society and NGOs should monitor progress, quality (standards) of projects and

timeliness completion of these projects to hold both government and contractors

accountable to the tax payers who service the debt.

Civil Society as it did prior to 2006 should come up with a well thought monitoring

mechanism to show both the Malawi government and the creditors that citizens are

watching the government and creditor acts on accumulation of Malawi’s public debt.

Of particular interest are the Phalombe hospital (with $7,000,000 signed 1/7/2010) which

has not taken off, and Zomba Jali Road ($7,000,000 signed 1/12/2005 Loan key 2005024),

Zomba Jali Phalombe Road (KWD 6,000,000 signed 8/12/2004), Zomba Jali Chitakale Road

($10,000,000 signed 4/13/2006) which remain incomplete.

Particular attention should be given to the 5 IMF ECF loans; small though they are, they are

key to Malawi accessing donor aid as they come with a policy programme agreed upon

between the Malawi government and the IMF to support Malawi’s economic recovery. Any

slippage on programme sends negative signal to all other donors including the CABs donors,

Malawi’s traditional donors potentially leading to disruption of aid flows into Malawi.

Much as the IMF ECF credit seem to provide quick fix solutions to Malawi’s economic

problems, the IMF should acknowledge its role in Malawi’s current economic crisis when it

subjected Malawi to its macro-economic reform programmes. The IMF ECF credits intended

to solve economic crises of Least Developed Countries like Malawi emerging from

exogenous shocks should not have any negative conditionalities except those that would

help grow the economy such as standard fiduciary policies of accountability and

transparency associated with loan transparency contraction.

As required by loan contracting process, room should be given for wider consultation

including members of the civil society prior to contracting including the ECF which have

been closed exclusively to government and the IMF mission. This would give more

legitimacy to the loans and also legitimize the loan contraction process.

Government of Malawi should also tread carefully where some loans are being contracted

as part of financial aid packages and also as part of trade investment packages agreements.

This arrangement has the risk of indirect loan contraction but at the same time open up for

resource flight from the country. Financial Aid from China has such strings attached.

To reduce build up of public debt and dependency on foreign aid, the Malawi government

should quickly strengthen laws and policies in the emerging mining sector which has the

potential to generate more revenue to finance capital for development and also meet

budgetary demands.

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Study Limitations and challenges The study was not without challenges. Some of the major challenges experienced were as follows:

1. Accessing required debt information: accessing the required debt information as well as

data proved very difficult as well as time consuming. The official website

www.finance.gov.mw provides a lot of information on debt and aid on Malawi. However, the

information is not detailed enough to enable a researcher conduct a comprehensive study

on debt in Malawi. The last comprehensive Annual Debt and Aid Report posted on the

website was the October 2006 for July 2005-June 2006 financial year. Subsequent reports

do not provide similar comprehensive information and one has to request the information

from the Debt and Aid Department.

2. Accessing public offices: Due to busy schedules of public officials at the Department of

Debt and Aid, it was not so easy to access and have an audience with them. This could be a

result of personnel issues but also the busy schedules that the department has to attend to

and this delayed field work

Malawi’s Socio-economic and development indicators Malawi remains one of the poorest countries in Southern Africa and in the world at large with 80%

of the population living below $2 per day and 20% living under $1 per day. This is irrespective of

having its external debt cancelled from U$2.8 billion to US$400 million in 2006 and also having an

average economic growth rate of 8.3 % per annum between 2007 and 2010 which dropped to 4.3%

per annum by 20111. The inflation rate, which in the same period, was pegged at 7.4% dropped

further down to 20.1%2 by June 2012 from a projected average of 18.4 %3 for the year 2012. The

agriculture sector which continues to be the main driver of the country’s economy with tobacco as

the main forex earner has also been performing badly in the last three fiscal years with the tobacco

fetching less and less each year as Table 1 below shows:

Table 1: Tobacco sales 2009-2012

Growing Season Volume sold ‘000 kg Amount in $’000 Difference in $’000 2011/2012 79.822 177.8 -98.9 2010/2011 237.171 276.7 -9.00 2009/2010 223.0 267.0 -166.00 2008/2009 208.0 433.0

Source: Annual Economic Outlook Reports, 2009 to 2012

The country has also faced many external shocks in the same period, for instance increase in cost of

agriculture inputs from $750 per metric tonnes to $1,600 in February 2008 and also fuel increase

1 IMF Press Release No 12/273, IMF Executive Board Approves New US$156.2 million Extended Credit Facility Arrangement for Malawi, July 23, 2012, Washington D.C 2 Ibid page 133

3 Annual Economic Outlook Report 2012 page 10

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from $8 million per month to $20 million in the same period. In May 2009, Malawi held the

presidential and parliamentary elections in which the Democratic Progressive Party (DPP) won

with a landslide victory but the elections forced the government to overspend and also to increase

its domestic debt to enable it finance shortfalls in the electoral process4. At the height of all these

economic challenges instead of reducing public expenditure to build up foreign reserves to meet

import cover demands, Malawi contracted a concessional loan to procure a presidential jet $22.1

million in 2009.5

In the course of 2009 to 2011, Malawi experienced heightened and sour relationship with most of

its bilateral donors under the Common Approach to Budget Support (CABS) arrangement as well as

the multilateral donors. As a result, donor aid inflows reduced and Extended Credit Facility (2009-

2010) which was key to unlocking aid financial flows, was suspended on account of Malawi’s poor

macro-economic performance.

On the contrary, during the same period, Malawi’s public debt grew tremendously the major reason

being the quest by government to keep its machinery running (meeting recurrent costs) without

donor support and also because of the failure of the budget to perform as expected in terms of

revenue collection.

History of Malawi’s National Debt

Post Independence to Debt Relief Malawi’s debt history dates way back to the 1970s when the Malawi Congress Party led regime

started to contract loans for development purposes and also to meet balance of payments due to

the inability to compete on the international market to finance its current account. By 1978 the

total debt stock reached US$586.1 million; in 1999 the debt stock stood at US$ 2.6 billion and by the

time Malawi was benefiting from the Highly Indebted Poor Country (HIPC) Multilateral Debt Relief

Initiative (MDRI) in 2005 the debt stock both public and publicly guaranteed debt (PPG) had

reached US$2.97 billion6.

Out of this debt stock, 88.4% was owed to Multilateral Institutions (MI) (of which 73.6% was owed

to IDA and 16.3% to the AfDB and the rest to various other MI institutions); another 11.5% was

owed to Bilateral institutions (of which Japan was owed 56.7% followed by the UK 15.6 % and the

rest to other bilateral creditors) while 0.1% was to commercial banks. BY the end of 2005, an

analysis of the US$2.97 billion debt showed that close to 96.8% of the public debt was owed by the

Central Government, while 2.6% was by the Reserve Bank of Malawi contracted to meet demands of

the IMF Structural Adjustment Programmes (SAPs) and the 0.6% was owed by public corporations.

4 IMF Malawi—Staff Report for the 2009 Article IV Consultation and Request for a Three-Year Arrangement

Under the Extended Credit Facility, Reference EBS/10/24, February 2010 5IMF, Malawi—Staff Report for the 2009 Article IV Consultation and Request for a Three-Year Arrangement Under the Extended Credit Facility—Debt Sustainability Analysis, February 2010, page 2 6 Ministry of Finance, Annual Debt and Aid Report, July 2005-June 2006, October 2006, Lilongwe page 19

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Rationale for Contracting the Loans: 1964 to 2005 Most of the loans contracted by the Malawi Government from the early 70s were meant to

overcome domestic shortages of savings and foreign exchange to meet some of Malawi’s

development needs especially in the areas of agriculture, health, education and infrastructure

development. However, the fact that by 2005, Malawi was still underdeveloped in the

aforementioned sectors raises the question as to whether the loans were indeed used for the

intended purpose.

As Table 2 below shows, most of the loans were contracted to meet balance of payments due to

poor performance of export commodities on the international market following world price drops

on raw agriculture products. Other loans were taken to meet increase in prices due to increase in

commodities such as oil and also to service loans that were maturing. For instance, oil prices per

barrel increased from $1.50 in 1950 to $2.70 in 1973 to $10 in 1974 and $32.50 in 1981. With poor

performance of Malawi’s export commodities, external borrowing for Malawi was the only option

to meet the country’s fuel demands.

While world price commodities of imported goods were soaring, Malawi experienced other external

shocks the worst being from 1992 to 1994 when there was a drought followed by flash floods

which resulted in poor performance of the agriculture sector leading to severe food shortages

which led to maize imports as the only alternative.

Table 2: Disbursement of Outstanding Debt by Use of Funds (% of DOD)

Use of Funds 1999 2000 2001 2002 2003 2004 2005 Balance of Payments 20.3 20.5 21.5 20.6 20.4 19.7 19.9 Agriculture 16.1 15.7 15.1 15.4 15.1 15.5 15.2 Transport 13.7 13.2 13.0 13.3 13.2 13.0 13.0 Education & Training 9.5 9.6 9.7 9.8 9.9 10.0 10.2 Health & Social Welfare 5.0 6.0 6.8 7.3 7.6 7.7 7.9 Finance & Entrepreneurship 8.5 8.2 7.9 7.6 7.4 7.3 7.2 Water & Irrigation Development 5.3 5.8 6.1 6.5 6.9 7.0 6.9 Energy 8.7 8.3 7.7 7.3 6.9 7.0 6.9 Industrial Development 5.9 5.6 5.4 5.2 5.0 4.9 4.8 Rural & Urban Development 2.8 2.8 2.8 2.7 2.7 2.7 2.7 Natural Resources 0.6 0.7 0.6 0.6 0.5 0.5 0.5 Tourism & Hotel Management 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 3.5 3.6 3.5 3.7 4.5 5.1 5.6 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Debt and Aid Division, Ministry of Finance

Debt Contraction and Oversight Mechanism: 1964 to 2005 In their report, “The Loan Contraction Process in Africa-Making Loans work for the poor: the Case

of Malawi,” AFRODAD report that

The causes of Africa’s debt crisis are varied and complex. A lot of emphasis has been put on external factors to the negation or belittling of internal factors. Notwithstanding the external factors, it is clear that the causes of the debt crisis in many African countries are

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also attributable to poor borrowing, debt policy and debt management factors. This problem is also a symptom of poor governance in which the underlying premises should be consensus oriented approval mechanisms, equity and inclusiveness in the use of scarce financial resources, effectiveness and efficiency in the use of financial resources, and accountability7.

The forgoing statement describes very well how the loans were contracted in the period after

Independence to around 2003 before the Public Finance Act was enacted. During this period, the

minister of Finance had the mandate to procure public loans on behalf of the government of Malawi

while the National assembly’s role was to approve the loan. The National assembly’s approval did

not entail debating the loan but rather giving it the go ahead only. There was no time in the history

of Malawi that a loan was ever rejected on account of not being important. In fact the National

Assembly even guaranteed loans taken by parastals such as ESCOM, Water Boards even some line

ministries. This was made worse by the fact there was no time to consult the public at large on a

particular loan since it was believed that Members of Parliament always spoke on behalf of the

people and whatever they agreed would also be agreed by the public-this took away any

accountability mechanisms to hold the MPs accountable on loan contraction.

Post Debt Relief to 2012 In 2006, Malawi qualified for Debt Relief under the Highly Indebted Poor Country (HIPC)

Multilateral Debt Relief Initiative (MDRI) in which Malawi’s debt stock was reduced from US$ 2.97

billion to US$ 488.3 million8. Most of the debt cancelled, 88.4% was owed to the multilateral

institutions, 11.5% to bilateral creditors while the 0.1% to commercial creditors was not cancelled.

Out of the debt cancelled $1.9 billion owed IDA was reduced to $189 million while $429 million

owed to AfDB was reduced to $52 million. Prior to the debt relief, the total debt stock had reached

150% of Malawi’s GDP which entailed that the debt had reached unsustainable levels. After the debt

relief, the Malawi government saved an average amount of $115 million annually from 2006 which

they were to inject into national development programmes to grow the country’s economy and

reduce poverty especially to the three Protected Priority Expenditures (PPEs), Agriculture and

Food Security, Health and Education.

However, the results of the MDRI were short lived as the debt stock began to rise steadily from the

year 2007 through to 2012 as Figure 1 below shows. As of June 2012, the total external debt

external reached $ 1,108.0 billion. The major reason for the growth in debt stock was the inability

of Malawi to compete at the international market, increase in transport and agriculture inputs..

7 AFRODAD, The Loan Contraction Process in Africa-Making Loans work for the poor: the Case of Malawi, page 7

8 Annual Debt and Aid Report, (July 2005-June 2006), page 27

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Figure 1: Total Public external debt stock 2005-2012

Composition of the Public Debt As Figure 2 below shows, by June 2012, Malawi’s total public debt reached $1,926 billion out of

which $1,108 was external while $818 million was domestic debt as figure shows below.

Figure 2: Composition of Malawi's Public debt

Source: Ministry of Finance, Debt and Aid Management, Annual Debt Report 2012

The current external debt stock of $1,108 billion represents 381% increase from the $488 million

remaining external debt stock after debt relief. Out of this debt stock $799 million is owed to

multilateral creditors of which 37% is owed to IDA, 21% to ADF and 18% is to the IMF. This means

that 56.7% of the external debt is owed to multilateral creditors while 42.3% is owed to bilateral

creditors and less than 1% to commercial creditors. Compared to 2005, 88.4% of the total debt

stock then was owed to multilateral creditors while, 11.5% to bilateral creditors and 0.1% to

2005 2006 2007 2008 2009 2010 2011 2012

Debt Stock 2,970.00 487.00 557.10 683.00 794.60 833.00 984.60 1,108.00

-

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00 A

Mo

un

t, M

illio

n

Domestic Debt, $818.00 million ,

42% Extrnal Debt,

$1,108.00 million , 58%

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commercial banks. Malawi has maintained the same borrowing pattern but so far does not have any

debts from commercial banks.

Figure 3: Multilateral Debt by Creditor by June 2012

Composition of Malawi’s Bilateral Debt As Figure 4 below shows, 53 % of Malawi’s bilateral debt is owed to the People’s Republic of China

25% is owed to India, 14% to Kuwait, 4% to Taiwan, 3% to France and the remaining 1% to

Belgium. Unlike prior to Debt Cancellation in 2006, Malawi did not have any bilateral loans with the

People’s Republic of China but owed 4.5% of its Bilateral Debt then to Taiwan.

Figure 4: Composition of Malawi's bilateral debt stock

Source: Ministry of Finance, Annual Debt Report 2012

ADF 21%

BADEA 4%

EIB 3%

IDA 37% IFAD

10%

SAUDI <1%

NDF 3%

OPEC 4%

IMF 18%

PTA FUND <1%

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Bilateral Debts with the People’s Republic of China have increased mostly because of the large and

fast disbursements that China makes to its partners. Loans from China have less conditionalities

attached them in comparison to most other bilateral or multilateral donors. Most of these debts

were taken in the period 2007 to 2011 when most of Malawi’s bilateral donors had frozen financial

support to the country.

Composition of external debt by currency In terms of the currency composition, most of Malawi’s external debt as given in Special Drawing

Rights (SDR) which in itself is a composition of the United States Dollar, the British pound, the Euro

and the Japanese Yen. But within the SDR, the US$ and the Euro dominate the share of the external

debt the US$ with 40.4% share while the Euro has 26.6% share. See figure 5 for details

Figure 5: External Debt by Currency

Domestic Debt Portfolio Domestic Debt refers to loans that the government contracts from the local commercial banks or

from the Central or Reserve Banks often times to meet its short to medium term needs like meeting

recurrent costs or paying of another maturing loan. The government borrows this money by using

Treasury Bills (TBs) most of the times, or it could use what is called “Ways and Means Advances.”

The challenge with domestic loans compared to external loans is that domestic loans have shorter

maturity period and often times carry very high interest rates above normal bank interest rates. As

a result domestic borrowing creates problems for individuals and the private sector to access loans

from the banks as they cannot manage to pay the interest rates charged to government. Despite that

government has to pay high interest rates, it also reduces liquidity and ends up crowding out the

private sector from the money market and affects productivity of the private sector.

By June 2012, Malawi’s domestic debt had reached MK 222.974 billion ($818 million) due to the

suspension of budget support by donors during the financial year which led to high borrowing by

Government from the Reserve Bank of Malawi through the Ways and Means advances which were

USD 40.4%

GBP 5.8% JPY

8.5%

Yuan 14.8%

Euro 26.6%

KWD 3.8%

Saudi riyal 0.1%

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later on converted to Treasury bills9. As Figure 6 below shows, Treasury Bills count for 80% of the

total domestic debt followed by Reserve Bank Recapitalization. This implies government borrows

most of the money it requires through that way as compared to all other forms.

Figure 6: Composition of the domestic debt

Source: Debt and Aid Department, Annual Debt Report, 2012

Most of these loans went to oiling the government machinery to keep running after budgetary

support and donor aid flows were reduced or cut completely. The bilateral donors under the CABS

arrangement had agreed with the Malawi government to pursue a set of performance indicators

under which the donors would disburse financial aid to the government. Some of these indicators

are:

Respect for human rights, democratic principles, sound macroeconomic management, good

governance, including sound public financial management, accountability and effective anti-

corruption programmes, and the rule of law constitute the fundamental principles upon

which budget support provision is anchored. Development Partners reminded the

Government of Malawi (GoM) on the importance of adhering to the principles and

expressed concern over infringement of some of the principles such as respect for minority

rights and freedom of the press. Concerns regarding the rights of minorities, such as

homosexuals, have also been raised by both Development Partners’ Parliaments and their

citizenry10.

Because of the poor political governance and the perceived infringements of Human Rights,

financial aid was suspended to Malawi except for those essential areas where the donors

implemented direct support.

9 Annual Debt Report 2012, page 13

10 Common Approach to Budget Support (CABS), March 2010 Review, page 3

Treasury Bills80%

Ways and Means

0%

LRS1%

RBM Recapitalization

13%

Promissory Note1%

Treasury Notes

5%

Advances (Banks)

0%

17 | P a g e

The IMF Loans: The Extended Credit Facilities (ECF) By July 2012, Malawi had accumulated $302 million in loans to the IMF under the ECF

arrangement. The ECF credit facilities are short-term concessional loans, carrying zero per

cent annual interest rate for any loan taken between 2008 until 2011 and thereafter the

ECF loans attract a 0.25% interest rate per annum with repayments made semiannually, for

maturity period varying between 5½ years up to 10 years after disbursement.11 These are

funded and managed by the Poverty Reduction and Growth Trust (PRGT). By 2008, the IMF

had reserved $1.2 billion to support Low Income Countries (LICs) experiencing any

exogenous shocks and require short term economic bailout while finding long lasting

solutions to the external shocks by following IMF’s macro-economic programme. The Trust

Fund increased to $4.0 billion in 2010 and it is expected to rise to $17 billion by 2014, with

the increasing demand for credit facility from poor countries. Most of the funds in the trust

come from the IMF’s internal resources12, including repayments from older concessional

loans. This Trust Fund will become the new tool that the IMF would use to provide loans to

LICs to deal with economic shocks and therefore become a new interest area for policy

makers, especially civil society, to investigate the new role that the IMF is assuming in the

midst of global economic challenges and its continued imposition of neo liberal economic

policies resisted in the Debt Campaign in the last two decades. Deducing from the build-up

of the Trust fund, it could be deduced that the IMF foresees a scenario where many LICs

would experience exogenous shocks that would disrupt their economic stability and

growth and so the IMF is strategically positioning itself to provide short term loans to the

already disadvantaged countries to cope with the external problems.

The overall purpose of the ECF loans is to prevent Malawi and other LICs from slipping

back from the IMF macro-economic policy programmes due to effects of the financial crisis

and other related exogenous impacts. These ECF loans, are not holy, neither technically or

necessarily intended as final definitive solutions to the financial crisis but as short term

solutions while Malawi follows the ECF IMF recovery economic policy programme. The

conditions in the ECF agreements and policy programme which the government of Malawi is

expected to adhere to include the following elements:

1. To liberalize the foreign exchange regime as well as depreciating the local currency and the

RBM having minimal intervention in matters of forex control by allowing commercial banks

and reputable forex bureaus to operate without restraint in the sector

2. To pursue prudent fiscal and monetary policies, as reflected in the fiscal year 2009/10

budget and through restrained monetary aggregate growth, to contain aggregate demand

and inflation pressures and shift demand toward domestic output

11

IMF, The Exogenous Shocks Facility-High Access Component (ESF-HAC), Fact Sheet March 2010 on

www.imf.org/external page 12

Financing the Fund’s concessional Lending to Low-Income Countries, International Monetary Fund Fact Sheet on

www.imf.org/external page

18 | P a g e

3. To create room in the budget for more social and pro-poor spending in line with the MGDS

and improving the structure of the social safety net to protect poor households from shocks

and policy adjustments, including exchange rate depreciation

4. Improve public financial management, tax administration, and the efficiency and solvency of

public utilities, and enhance the business climate by expanding the capacity and quality of

infrastructure, promoting investor access to finance, and reforming legal and regulatory

frameworks governing financial supervision and the operation of other key economic

activities

On the other hand the conditions that the Malawi Government has committed itself to

adhere to as part of the ECF agreement included the following elements:

a. To provide a consistent and coherent macro-economic policy framework to underpin

Malawi’s development objectives more especially to preserve macro-economic

stability while enhancing growth and poverty reduction.

b. To move towards a market determined forex exchange rate by December 2011 and

to rebuild international reserves

c. To improve public financial management and monetary and fiscal transparency

d. To support a private sector led growth13.

Malawi was IMF’s ECF first beneficiary with the first loan of $77million (December 2008-

December 2009) and a second more conventional three-year loan program worth $79.4

million under the Extended Credit Facility (formerly the Poverty Reduction & Growth

Facility) for 2010-2012 of which $52,050 million was disbursed and the rest withheld

because Malawi went off track on the terms and conditionalities of the EFC during the

Democratic Progressive Party led government. The latest one is $104 million for the period

running 2012 to 2015 contracted under the People’s Party led government. Full details of

the active loans under the IMF ECF arrangement with the IMF are given in Table 3 below.

Table 3: Active Loans with the IMF

Facility

Date of Arrangement

Date of Expiration or Cancellation

Amount Agreed

XDR

Extended Credit Facility 23-Jul-12 22-Jul-15 104,100

Extended Credit Facility 19-Feb-10 24-Jul-12 52,050

Exogenous Shock Facility 3-Dec-08 2-Dec-09 52,050

Extended Credit Facility 5-Aug-05 4-Aug-08 48,580

Extended Credit Facility 21-Dec-00 20-Dec-04 45,110

301,890

13 Malawi: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of

Understanding, January 26, 2010, www.imf.org

19 | P a g e

Source: Department of Debt and Aid, Ministry of Finance

What triggered Malawi to contract the IMF ECF Loans

The trigger of the IMF ECF is the effects and impact of the 2008 economic crises which

began in the USA and spread through Europe and other parts of the world. The economic

crisis was mostly caused by failures in market regulation in the United States, particularly

in the banking and housing (mortgage) sectors. Although Malawi was not badly hit by the

aftermath of the 2008 economic crisis because of abundant and cheaply priced food on the

domestic market with exception of imported food stuffs, Malawi nevertheless experienced

severe trade imbalance mostly because of poor tobacco sales and increased demand for

imports but low foreign reserves. At the same time, Malawi experienced sharp increases its

essential imports for instance, fuel costs shot from $8 million per month in 2007 to over

$20 million per month in February 2008, fertilizer price increases from $750/metric to

about $1,600 per metric tonne. As a result, Malawi was not able to meet its import covers,

thereby disrupting trade in the private sector as business people were not able to access

the required forex to procure or pay for services on time. It was during this time and after

that the IMF started to implement the ECF facilities.

Therefore the aftermath of the economic crisis and the need to address its effects once

again motivated the G20 to legitimize the IMF’s new role to save ailing economies of LICs

such as Malawi just as it did during the Third World Debt Crises which ended in 2006 in

which the IMF played a crucial role of a gate keeper to creditors and an advisor to debtor

countries. Ironically, while the IMF was providing loans to Malawi and other LIC countries

to mitigate the impacts of the aftermath of the 2008 Economic Crises, some rich countries

such as the US and other European countries were providing bailout packages to their

ailing economic sectors.

Importance of IMF ECF Loans to Malawi The overall purpose of the ECF loans is to prevent Malawi and other LICs from slipping back from

the IMF macro-economic policy programmes due to effects of the financial crisis and other related

exogenous impacts. These ECF loans, are not holy, neither technically or necessarily intended as

final definitive solutions to the financial crisis but as short term solutions while Malawi follows the

ECF IMF recovery economic policy programme. The contraction of these loans is often times

reached between the IMF mission and the government, in this case, the Malawi Government and

there is limited consultation with the wider civil society14.

The IMF ECF loans to Malawi are a critical component to Malawi’s economic well being and so

worth the interest of stakeholders like civil society organizations and the private sector. Although

the loans are in small amounts compared to other bilateral and multilateral loans and have

14 CSO, the National Assembly and private sector has been consulted on the ECF but it has not been to the required depth and often times at short notice. MEJN led CSO to meet the IMF mission on the ECF but the discussions were not rich as the meetings excluded government participation during such meetings.

20 | P a g e

concessional interest arrangements, the policy package that comes with the loans is of vital

importance and worth monitoring especially as regards to its effects on service provision and

poverty reduction and also adherence by the Malawi government as tricking of foreign aid depends

on much on the degree to which the government adheres to the terms of agreement. The package is

neo-liberal, and the terms of agreement are felt to be generally pitched too high for a country like

Malawi. For instance, due to the nature and fragility of the Malawi economy, the government of

Malawi cannot do without domestic borrowing to meet some of its recurrent transactions and yet

under the ECF, the government is expected to slow down on domestic borrowing. When this occurs,

the government risks to be off track on the ECF agreements and risk sending panic signals that

Malawi is not adhering to the IMF macro-economic policies.

Disruption of the ECF arrangement makes the IMF to send panic signal that Malawi is not ready to

adhere to macro-economic conditions and so not eligible to get funds from its partners. At any

given moment, Malawi needs to have a running programme with the IMF for most of its bilateral

and multilateral donors to give the required budgetary support and other forms of financial support

which Malawi cannot do without due to its perennial budget deficit challenges. And without donor

support Malawi cannot do without domestic borrowing as this is the only way to ensure smooth

running of the government. It is therefore critical that the Malawi government adheres to good and

sound macro-economic policies, economic and political governance and observance of human

rights so that the government can still get the required financial resources to support budget deficit.

It is also important that the Malawi government began to find concrete ways to begin to address its

perennial trade deficit which creates shortfalls in balance of

payment (BoP) in the current account for which Malawi

contracts loans to finance the difference. One of such ways is

to scale down on unnecessary public expenditure especially

those that are politically motivated and outside the MGDS

priorities. Government also needs to rationalize what it

imports so that only commodities that Malawi needs to

import that go towards production and export would have

priority.

Specifically on the ECF, there is need for Civil Society organizations to monitor Malawi’s adherence

levels to the credit facility as any disruption would also jeopardize aid flows on which most poor

people in the country depend for their daily survival in health, agriculture and education.

Loans Accrued 2009-2012 Malawi’s public debt increased tremendously between the years 2009 and 2012 as Annex 1 shows.

The National Assembly approved 6 loans in 2010/11, 9 in 2011/2012 and 9 others in the

2012/2013 sittings. In the history of Malawi, this was only the time that the National Assembly ever

approved such a number of financial bills in one sitting.

Borrowing for consumption is not advisable, but Malawi has no choice under the circumstances it finds herself in. Chikavu Nyirenda, Economist, Daily Times, November 30th 2012

21 | P a g e

The Loan Contraction process An analysis of the manner in which the loans were passed by the National Assembly indicates low

levels of debate amongst the legislators, lack of detailed information on the actual loans and their

purposes. Having talked to a few legislators, it was also pointed out that often times the financial

bills are given to the legislators at very short notice so much so that the members of parliament

hardly have time to consult and also understand the loan facility being presented to before them for

approval. To some members of parliament, this was a clear example of politicization of the loans by

the executive by keeping information and not following procedures such as providing adequate

time to read and understand the Bill prior to the debate. This is against the spirit of the National

Assembly Standing Order that stipulates that:

The Member or Minister In Charge of a Bill shall publish the Bill in the Gazette and deliver to

Clerk enough copies for all Members at least twenty-eight days before the Bill is First Read

in the House15.

For instance, one legislator during discussion over a $52 million loan from IDA tabled in the

National Assembly having no details on financial bill No 6/2011 said:

Can we, for instance have those agreements presented to one of our Parliamentary

Committees for example, Budget and Finance Committee? I am pointing this out, Mr.

Speaker, because we have an interest to find out some of the possible interest repayments

which will be factored in and any conditions which will be associated with any agreements

which will be reached by the Minister of Finance and International Banks. Can we be

assured, for instance, Mr. Speaker, through you that Malawian companies will be considered

in the supply of the goods and services indicated in the bill? We would want this money to

benefit our local businesses and of course in a fair and transparent manner.”16

Legal and Policy framework for loan contraction and monitoring Loan contraction process in Malawi is regulated by a legal and policy framework. Despite this, in

general terms, the loan contraction process in Malawi remains weak, heavily driven by the

executive and despite having a department for Debt and Aid with a clear Debt and Aid Policy (2003-

2008), the management of loans remains weak. Some of the major legal and policy instruments that

regulate the process are as follows:

The Republican Constitution stipulates that

a loan may be raised by the government under the authority of an Act of Parliament and not

otherwise17.

15 National Assembly Standing Order, number 116 (1) 16 Hon UDF Spokesperson on Finance (Hon Muluzi)) (42nd Session of National Assembly, January 2010-

December 2011

17 Republican Constitution Section 180

22 | P a g e

And sub section 2 states that”

Parliament may, in the Act authorizing the raising of a loan or by any other Act, appropriate

the proceeds of the loan for specific purposes and authorize the payment of such proceeds

out if the Consolidated Fund for such purposes18.

The Public Finance Management Act (2003) stipulates that

…when an Act authorizes the borrowing of money and the Minister decides to raise a loan

accordingly, the Cabinet shall determine the following matters – (a) the price of the

securities (if any); (b) the date or dates on which the money is to be repaid; (c) whether the

Government will reserve the right to repay the loan before maturity, and if so, on what

notice; (d) the rate or rates of interest to be paid on the amount borrowed; (e) the date or

dates from which interest is to be computed and the half-yearly dates on which interest is to

be paid; (f) the amount of the loan within the limit set by the authorizing Act; (g) whether or

not the Minister may accept subscriptions in excess of the amount of the loan within the

limit set by the authorizing Act; and (h) any other special conditions which shall apply to

money borrowed in terms of the authorizing Act19.

The Public Audit Act (2003) gives powers to the Auditor General’s Office created by the section 184

of the Republican Constitution to

Undertake a programme of audits, and in accordance with section 7, 2 (of this Act), to

examine transactions, books, and accounts and other public records of every Ministry

statutory office, offices, agency, board, commission and bureau of Government, and public

funds received by non-profit organizations including relevant international organizations20.

The Act further empowers the Auditor General to

Monitor compliance, with requirements of any written law governing the management and

control of public money and public resources21,

The three pieces of legislation give powers to the minister of finance to contract loans but at the

same time they also control how such loans are to be contracted one of which is the role the

legislature needs to play to make sure that only necessary loans are accrued.

However in reality, the national assembly has never rejected any loan bill; worse still the national

assembly through the Budget and Finance Committee, has never queried use of loan money on

development projects despite that this is one its roles as an oversight mechanism clearly stipulated

in Standing Order 159 (c) which states that:

18

Republican Constitution Section 180 subsection 2 19

Public Finance Management Act (2003), Part II, 2 20 Public Audit Act (2003), Section 6 21 Ibid Section 4 sub section (a)

23 | P a g e

The functions of the Budget and Finance Committee shall include examining Government’s

domestic and International borrowing policies.

Out of the loans approved this far there are several projects financed by the loans that have not

been completed or have been abandoned and yet the people of Malawi will have to service the loans

taken for these projects. The Budget and Finance Committee has never provided any report on the

progress of some of these projects. Some of these are:

Phalombe District Hospital $7 million

Zomba Jali Road $7 million

Zomba Jali Phalombe Road KWD 6 million

Zomba Jali Chitakale Road $10 million

Alignment of the Loans contracted to the MGDS and Poverty Reduction Out of the 49 loans active loans by July 2012, 34% of them were for the transport and infrastructure

development, 17% for agriculture, 11% for the IMF-ECF policy programme, 8% to meet Balance of

payment and Line of Credit, another 8% for Water Development, 6% for education, 6% for the

health sector , another 6% for Rural Development and 2% guaranteed for the private sector (Air

Malawi and ESCOM). In terms of alignment to meet and support MGDS priorities, 77% of the loans

went to MGDS related priorities (Education, Health, Transport and Infrastructure Development,

Rural Development, Agriculture and Water Development) while the remaining 23% were non

MGDS activities or priorities. To a certain degree, it could be concluded that the loans contracted

resonate with Malawi government’s developmental and poverty reduction agenda. However, what

is challenging is the implementation of the loans to meet the desired goal. For instance, some four

loans as stipulated above have not gone to the intended purpose or have been abandoned for

various reasons varying from corruption, soaring costs of meeting expenses to finalize the projects

or political decisions made to divert the funds or project to other areas.

Figure 7: Allocation of loans per sector

Infrastructure dev, 16, 34%

Education, 3, 6%

Rural Dev, 3, 6% Parastatals, 2, 4%

BoP & Line of Credit, 4, 8%

Water Dev, 4, 8%

Health, 3, 6%

Agriculture, 8, 17%

IMF-ECF, 5, 11%

24 | P a g e

25 | P a g e

For the loans to make impact and go to the intended programmes, there is need for monitoring of

all credit funded projects and civil society organizations could play the vital role of being watch

dogs over loan funded projects.

Conclusion

The Analysis of Malawi’s National Debt from the time Malawi received Debt Cancelation in 2006

shows that within a period of 6 years, Malawi’s total debt stock has risen from $487 million to

about $2 billion over 54% of Malawi’s GDP. Much as both the Malawi government and the donor

community indicate that Malawi’s debt levels are sustainable, the actual debt servicing is taking up

a lot of resources that could be used for other poverty reduction programmes in the country. Worse

still, there is weak monitoring of progress of externally financed projects t make sure that the

projects attain the indented goals, this may lead to corruption and abandonment of projects and

therefore loss of the loan money which all Malawians would have to service at some stage.

As a conclusion here some of policy recommendation that may contribute towards making sure that

the accrued loans are beneficial, needed and go to towards national development and poverty

reduction in the country:

There is need to strengthen the loan contraction process so that the loan contraction

process becomes open to wider stakeholder consultation. This could be achieved by

revising the powers of the Minister for Finance to contract loans on behalf of the country by

enhancing the role of the legislature to approve the loans

Civil Society has been quiet after attainment of Debt Cancellation in 2006; to date no civil

society has done any debt stock analysis for Malawi and to provide alternative solutions to

the build- up of Malawi’ Debts Stock. There is need for CSO to begin to monitor Malawi’s

debt stock to ascertain their legitimacy and importance.

Malawi has acquired several ECF loans from the IMF to address exogenous shocks such as

increase in commodity prices such as fuel and agricultural inputs; there is need to monitor

both the adherence to the ECF terms but also the impact of the agreements on provision of

essential services as some of the conditionalities are detrimental to service provision.

Civil Society and other non stakeholders need to take stock of the implementation of credit

funded projects to monitor compliance and timely completion but also the quality of such

projects. So far findings of this research show that a few credit funded projects have been

abandoned or left uncompleted or their funds diverted to other programs.

26 | P a g e

Table of Annexes Table 4: Loans approved by National Assembly 2010 to 2012

Annex 1: Loans Approved by Parliament 2010 to 2012 Bill

Number Creditor Amount’000 Date

Assented Currency Purpose

Loans approved by Parliament in 2010 Sitting (6) 9/2010 ADB 11,600 15/6/2010 AU Governance & Poverty Reduction Support Programme

18/2010 IDA 9,500 24/6/2010 SDR Social Action Fund II 19/2010 IDA 33,000 13/6/2010 SDR Improvement of Education Quality 20/2010 BADEA 7,000 1/7/2010 US$ Phalombe District Hospital 22/2010 China 543,813,600 23/6/2010 Yen Malawi University of Science and Technology 25/2010 3,162,000 6/12/2010 UA Local Economic Development Project

Loans approved by Parliament in 2011 Sitting (9) 3/2011 IDA 16,100 15/7/2011 SDR Mining governance and growth project 4/2011 BADEA 4,000 18/8/2011 US$ Zomba Jali- Chitakale Road 5/2011 IDA 75,800 18/8/2011 SDR Second Water project 6/2011 IDA 52,400 18/8/2011 SDR Energy Sector project 7/2011 Kuwait Fund for Arabic development 2,900 18/8/2011 KD Supplementary Loan Zomba Phalombe Chitakale Road 8/2011 IDA 18,100 18/8/2011 SDR Soche technical School 9/2011 Saudi Fund for Development 45,000 22/12/2011 SR Three Teacher Training Colleges

20/2011 OPEC 5,000 22/12/2011 US$ Zomba Jali Chitakale Road 21/2011 International Fund for Agricultural

Development 14,560 22/12/2011 SDR Sustainable Agricultural Production programmes

Loans approved by Parliament in 2012 Sitting (9) 2/2012 ADB 9,050 16/4/2012 UA Higher Education, Science and Technology project 3/2012 ADB 6,500 16/4/2012 UA Higher Education, Science and Technology project 5/2012 ADB 10,000 16/4/2012 UA Competitiveness, Job Creation support project 7/2012 IDA 19,400 16/4/2012 SDR Agriculture SWAP

20/2012 IDA 33,200 12/7/2012 SDR Irrigation, Rural Livelihood 21/2012 IDA 33,200 12/7/2012 SDR MASAF Phase II 22/2012 IDA 51,700 12/7/2012 SDR Nutrition, HIV and AIDS Project 25/2012 IDA 80,000 12/7/2012 SDR Shire River Basin Management 26/2012 OPEC 10,000 12/7/2012 US$ Rural Livelihoods, economic enhancement

27 | P a g e

Annex 2: Details and Purpose of External Loan Instruments contracted by 2012 The table below gives details of active loans that Malawi has by loan amounts, creditor, maturity period, interest rates and purpose for

which they were contracted.

LOAN CREDITOR

SIGNING

DATE

GRACE

PERIOD

(YEARS)

REPAYMEN

T TERM

(YEARS)

INTEREST

RATE/ANNUM LOAN AMOUNT

Loan Amount in

US $ SECTOR

Construction of

Three Teacher

Training College

Saudi

Arabia Jun-12 10 20 2 SR 45,000,000 12,000,000.00 Education

Competitiveness and

Job Creation ADF Mar-12 10 40 0.75 BUA 10,000,000 15,400,000.00

Private Sector

Development

Higher Education

Science and

Technology ADF Mar-12 10 40 0.75 BUA 9,050,000 13,937,000.00 Education

Higher Education

Science and

Technology NTF Mar-12 7 20 0.75 BUA 6,500,000 10,010,000.00 EducationSustainable

Agricultural

Production IDA Jan-12 10 30 0.75 SDR 14,650,000 21,975,000.00 Agriculture

Financial Sector

technical Assistance IDA Nov-11 10 30 0.75 SDR 18,100,000 28,200,000.00

Economic

Governance

Mining and

Governance Project IDA Nov-11 10 30 0.75 SDR 16,100,000 25,000,000.00 Energy and Mining

Aditional Financing

for National Water

Development Project IDA Nov-11 10 30 0.75 SDR 60,000,000 95,000,000.00

Water, Sanitation

and Irrigation

Energy Sector

Support Project IDA Nov-11 10 30 0.75 SDR 12,000,000 19,300,000.00 Energy and Mining

28 | P a g e

Annex 3: List of active loans with the World Bank

CREDITOR CATEGORY

CREDITOR Creditor Country

LOAN KEY Debtor name Debtor type LOAN TITLE Agreement date

ORIGINAL AMOUNT

ORIGINAL CURRENCY

MULTILATERAL BADEA Arabic Govts

1999004 Malawi Government Government Naminga Mangochi Road

3/18/1999 10,000,000.00 USD

MULTILATERAL BADEA Arabic Govts

2001006 Malawi Government Government Small farms Irrigation Project

11/29/2001 8,000,000.00 USD

MULTILATERAL BADEA Arabic Govts

2002004 Malawi Government Government Naminga Mangochi Road,

Supplementary Loan

5/24/2002 5,000,000.00 USD

MULTILATERAL BADEA Arabic Govts

2004029 Malawi Government Government KIA Rehabilitation Project

1/8/2004 6,400,000.00 USD

MULTILATERAL BADEA Arabic Govts

2006002 Malawi Government Government Zomba Jali Chitakale Road

4/13/2006 10,000,000.00 USD

MULTILATERAL BADEA Arabic Govts

2008003 Malawi Government Government Thyolo Bangula Road

5/13/2008 10,000,000.00 USD

MULTILATERAL BADEA Arabic Govts

2009006 Malawi Government Government Construction of three Teacher

Training Colleges

11/23/2009 7,000,000.00 USD

MULTILATERAL BADEA Arabic Govts

2010003 Malawi Government Government Phalombe District Hospital

1/7/2010 7,000,000.00 USD

MULTILATERAL OFID OPEC 1998006 Malawi Government Government Nkhotakota Hospital

Construction project

5/25/1998 7,000,000.00 USD

MULTILATERAL OFID OPEC 1998016 Malawi Government Government Naminga Mangochi Road

12/2/1998 7,000,000.00 USD

MULTILATERAL OFID OPEC 2000115 Malawi Government Government KK Hospital-Phase 2

6/8/2000 2,350,000.00 USD

MULTILATERAL OFID OPEC 2002011 Malawi Government Government Liwonde Naminga Road

7/31/2002 9,500,000.00 USD

MULTILATERAL OFID OPEC 2005024 Malawi Government Government Zomba Jali Road 1/12/2005 7,000,000.00

USD

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MULTILATERAL OFID OPEC 2008002 Malawi Government Government Second National Water

4/11/2008 10,000,000.00 USD

MULTILATERAL OFID OPEC 2010002 Malawi Government Government Construction of Three teacher

Training Colleges

3/23/2010 11,000,000.00 USD

MULTILATERAL IFAD 1988028 Malawi Government Government Smallholder Agricultural Credit

Project

3/4/1988 4,950,000.00 XDR

MULTILATERAL IFAD 1993001 Malawi Government Government Smallholder Food Security Project

11/12/1993 9,350,000.00 XDR

MULTILATERAL IFAD 1994006 Malawi Government Government Mudzi Financial Services Project

1/28/1994 8,650,000.00 XDR

MULTILATERAL IFAD 1998010 Malawi Government Government Smallholder Flood Plains

development Project

9/22/1998 9,250,000.00 XDR

MULTILATERAL IFAD 2003039 Malawi Government Government Rural Livelihoods Support Program

11/13/2003 10,700,000.00 XDR

MULTILATERAL IFAD 2006001 Malawi Government Government IRLAD 1/9/2006 5,500,000.00 XDR

MULTILATERAL IFAD 2008105 Malawi Government Government RLEEP 12/23/2008 5,350,000.00 XDR

MULTILATERAL IFAD 2012001 Malawi Government Government Sustainable Agricultural Production Programme

1/24/2012 14,650,000.00 XDR

MULTILATERAL EIB 1993011 ESCOM Parastatal Malawi ESCOM III 12/22/1993 15,000,000.00 EUR

MULTILATERAL EIB 1996012 Lilongwe Water Board Parastatal Lilongwe Water Supply II

11/22/1996 15,000,000.00 EUR

MULTILATERAL EIB 1998018 Malawi Government Government GL for Productive Enterprise

10/23/1998 2,062,368.00 EUR

MULTILATERAL EIB 2008104 Water Boards Parastatal Malawi Peri Water Urban and Sanitation

12/19/2008 15,750,000.00 EUR

MULTILATERAL SAUDI FUND Saudi Arabia

2012011 Malawi Government Government Construction of three Teacher

Training Colleges

6/11/2012 45,000,000.00 SR

MULTILATERAL SAUDI FUND Saudi Arabia

2011011 Malawi Government Government Thyolo Bangula Road

3/1/2011 45,000,000.00 SR

MULTILATERAL NORDIC DEV FUNDS

1991035 Malawi Government Government Fisheries Development

Project

9/10/1991 2,354,126.00 XDR

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MULTILATERAL NORDIC DEV FUNDS

1995001 Malawi Government Government National Water Development

Project

10/10/1995 3,400,000.00 XDR

MULTILATERAL NORDIC DEV FUNDS 1997001 Malawi Government Government Power v Project 9/22/1997

5,000,000.00

XDR

MULTILATERAL NORDIC DEV FUNDS 1998017 Malawi Government Government

Preparatory pro. to support Tel. Sectot Project 5/28/1998

4,340,844.00

XDR

MULTILATERAL NORDIC DEV FUNDS 1999008 Malawi Government Government

Road Maintenance and Rehabilitation 9/16/1999

4,826,480.00

XDR

BILATERAL EXIM BANK TAIWAN Taiwan 2007021 Malawi Government Government

Karonga- Chitipa Road 5/10/2007

30,000,000.00

USD

BILATERAL EXIM BANK TAIWAN Taiwan 1996001 Malawi Government Government

Balance of payment support 4/30/1996

20,000,000.00

USD

BILATERAL EXIM BANK CHINA

Mainland China 2009003 Malawi Government Government

International Conference Center and Hotel, LL 8/9/2009

630,000,000.00

CNY

BILATERAL EXIM BANK CHINA

Mainland China 2011002 Malawi Government Government

Malawi University of Science and Technology 2/18/2011

540,000,000.00

CNY

BILATERAL INDIA INDIA 2008017 Malawi Government Government Line of Credit 5/14/2008 30,000,000.00

USD

BILATERAL INDIA INDIA 2011001 Malawi Government Government Line of Credit 2/1/2011 50,000,000.00

USD

BILATERAL KUWAIT KUWAIT 2004068 Malawi Government Government Zomba Jali Phalombe Road 8/12/2004

6,000,000.00

KWD

BILATERAL KUWAIT KUWAIT 2007001 Malawi Government Government Thyolo Bangula Road 3/19/2007

4,000,000.00

KWD

BILATERAL KUWAIT KUWAIT 2007006 Malawi Government Government HIPC Debt Relief Agreement 4/25/2007

6,825,000.00

KWD

COMMERCIAL PTA BANK 2005143 Malawi Government Government Air Malawi Loan 2/28/2005 9,080,000.00

USD

Annex 4: List of Active Loans with the IMF

Facility Date of agreement Date of Expiration Amount’ 000 XDR Extended Credit Facility 23-Jul-12 22-Jul-15 104,100

31 | P a g e

Extended Credit Facility 19-Feb-10 24-Jul-12 52,050 Exogenous Shock Facility 3-Dec-08 2-Dec-09 52,050 Extended Credit Facility 5-Aug-05 4-Aug-08 48,580 Extended Credit Facility 21-Dec-00 20-Dec-04 45,110

32 | P a g e

Bibliography and References

AFRODAD, The Loan Contraction Process in Africa-Making Loans work for the poor: the Case of

Malawi

Annual Debt and Aid Report, (July 2005-June 2006

Annual Debt Report 2012

Annual Economic Outlook Report 2012 Common Approach to Budget Support (CABS), March 2010 Review

Financing the Fund’s concessional Lending to Low-Income Countries, International Monetary Fund Fact

Sheet on www.imf.org/external page

IMF Malawi—Staff Report for the 2009 Article IV Consultation and Request for a Three-Year

Arrangement Under the Extended Credit Facility, Reference EBS/10/24,

IMF Press Release No 12/273, IMF Executive Board Approves New US$156.2 million Extended Credit Facility Arrangement for Malawi, July 23, 2012, Washington D.C

IMF, The Exogenous Shocks Facility-High Access Component (ESF-HAC), Fact Sheet March 2010 on

www.imf.org/external page

Malawi: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum

of Understanding, January 26, 2010, www.imf.org

National Assembly Standing Order

Public Finance Management Act (2003)

Republican Constitution 1994