Malawi will soon have a huge chunk of its foreign debt scraped off following qualification into the Highly Indebted Poor Countries (HIPC) programme.
HIPC is the joint IMF–World Bank comprehensive approach to debt reduction and is designed to ensure that no poor country faces a debt burden. The program was introduced in 1996 to ensure that no poor country faces an unmanageable debt burden.
According to International Monetary Fund (IMF), Malawi’s foreign debt stands at K3.3 trillion which is 27 percent of the country’s nominal gross domestic product (GDP)
The HIPC initiative helps poor countries accelerate progress toward the United Nations’ Sustainable Development Goals. It allows countries completing the HIPC Initiative process to receive 100 percent relief on eligible debts by the IMF, the World Bank, and the African Development Bank.
Currently 36 Regional Member Countries (RMCs) are eligible to benefit from the initiative. The NPV of debt relief for each country is determined in collaboration with the IMF and the World Bank and is derived by discounting the stream of future debt-service payments using the OECD’s currency– specific six-month Commercial Interest Reference Rate (CIRR).
The member countries are; Afghanistan, The Gambia, Nicaragua, Benin, Ghana, Niger, Bolivia, Guinea, Rwanda, Guinea Bissau, São Tomé, Burkina Faso, Burundi, Guyana, Senegal, Cameroon, Haiti, Sierra Leone, Central African Republic, Honduras, Tanzania, Chad, Liberia, Togo, Comoros, Madagascar, Uganda, Republic of Congo, Zambia, Democratic Republic of Congo, Republic of Mali, Côte d’ lvoire and Mauritania.
Malawi previously benefitted from this initiative during Bingu wa Mutharika era between 2005 and 2006. However, the gains of debt relief were wiped out in subsequent years by high levels of corruption during the reigns of Bingu and his brother Peter.
There are high hopes that with sound macroeconomic policies by the Chakwera administration, the impending relief will play a great role in both the economic recovery and growth trajectories.