The World Bank and the International Monetary Fund (IMF) have endorsed Malawi's qualification for full debt relief, a development that reduces the impoverished southern African country's foreign debt burden to 400 million U.S. dollars from about three billion dollars.
"Malawi will now save about 110 million dollars every year that was used to pay foreign debt," Finance Minister Goodal Gondwe announced on Friday at a joint press briefing with World Bank country manager Tim Gilbo and IMF resident representative Thomas Baunsgaard in Blantyre, south Malawi.
Gondwe said Malawi had been forgiven the debt following the endorsement of its completion point document under the heavily indebted poor countries (HIPC) initiative by the IMF on Wednesday and the World Bank on Thursday.
The Breton Wood institutions launched the HIPC Initiative in 1996 which created a framework for all creditors to provide debt relief to the world's poorest and most heavily indebted countries, and thereby reduce the constraint on economic growth and poverty reduction efforts imposed by the debt build-up in these countries.
The initiative was modified in 1999 to allow more poor countries to qualify for debt relief and to establish a stronger link between debt relief and poverty reduction.
Malawi's current debt relief, however, falls under an initiative proposed by the G8 countries at their 2005 summit that the IMF, the International Development Association of the World Bank, and the African Development Fund cancel 100 percent of their debt claims on the countries that have reached, or would eventually reach the completion point under the IMF-World Bank HIPC initiative.
Gondwe said Malawi's remaining 400 million dollars foreign debt was owned to other lending institutions that were not part of the G8 arrangement.
Gilbo, however, cautioned that Malawi's economy was still very vulnerable to external shocks and therefore stressed the need for wise investment program both by the government and its international development partners.
"Malawi must strive to achieve high growth," he said, adding that the country still had a lot of work to do in the education and health sectors.
Baunsgaard, also cautioned Malawi to fight against the temptation to get into more borrowing as it was very easy to accumulate more debt and get back into a debt burden crisis.