Malawi gets debt cancellation

After years of waiting, Malawi has finally got cancellation of some of its huge and crippling debts.

The agreement by the World Bank and IMF, on 31 August, amounts to a total cancellation of $3.1 billion: this will make a huge difference to Malawi's economy. Even though it had already been allowed to reduce its debt payments slightly, ahead of actual cancellation, Malawi has still been paying nearly $70 million a year in debt payments (interest and principal repayments) to the rich world. This is nearly four times as much as the UK gives in aid to Malawi every year. After debt cancellation, this should now drop to about $5 million a year, saving it more than $60 million a year.

The cancellation comes after a long wait and an arduous struggle. To get the debts cancelled, Malawi had to complete the Heavily Indebted Poor Countries (HIPC) initiative, a scheme criticised for being too limited, too slow and coming with harmful and undemocratic conditions attached. Malawi actually entered HIPC in December 2000, nearly six years ago: in the meantime, it has paid out $440 million in debt service to the rich world, as it struggled with the difficult conditions it was told it had to meet to get any debts cancelled.

These conditions included requirements that Malawi privatise enterprises including the national telecoms company and national airline, and "commercialise" the state agricultural company (full privatisation was abandoned after strong public protest). The International Monetary Fund (IMF) also told Malawi it had to cut back on spending: but Malawi needs huge public investment. It is suffering an appalling HIV/AIDS crisis which means that one in seven adults is HIV positive - but there is only one doctor for about every 80,000 people (compared to one in every 600 people in the UK). It has also been suffering a food crisis brought on by drought - and donors did not provide the assistance that was promised.

But despite these huge problems and clear needs, the IMF still said Malawi had to cut spending in order to get debt relief. When it 'overspent' - at least in part on importing grain to feed its people - the IMF punished it by suspending debt relief (the reduction in debt payments it had been promised) and delaying much-needed debt cancellation still further.

Now that Malawi has got past these appalling obstacles, it has the debt cancellation it deserves and needs. The rich world needs to ensure that all unjust and unpayable debts are cancelled, without forcing more countries to go through the same pains as Malawi.