Economists have implored Malawi’s creditors to reconsider debt restructuring after the country spent a whopping $101 million (about K176.8 billion) on external debt payments in 2023.
Data contained in the 2023 World Bank International Debt Report, an annual report that features debt statistics and analysis for countries, shows that Malawi paid $77 million (about K134.8 billion) in principal payments and $24 million (about K42.4 billion) in interest at the end of 2023.
As a percentage of the gross domestic product (GDP), Malawi spent more than 12 percent of its export earnings on debt servicing, about twice higher than the six percent average paid by International Development Association (IDA) countries over the same period.
By the end of 2023/24 financial year, the government’s payments had spiralled to K931.4 billion and is expected to rise further to K1.46 trillion in the current fiscal year, representing 7.8 percent and 43 percent of GDP and domestic revenues, respectively.
Interest on foreign debt is estimated at K79.74 billion (about $45.5 million), more than double the amount paid in 2022.
Speaking in an interview on Tuesday, Scotland-based Malawian economist Velli Nyirongo warned that Malawi’s existing debt servicing level would pose a significant risk to foreign exchange reserves, a development that would worsen existing economic vulnerabilities.
In a separate interview, Catholic University of Malawi economics lecturer Derrick Thomo said spending 12 percent of exports earnings on debt, about two percentage points higher than the 10 percent average for low-income economies, would “leave fewer resources for imports and investment”.
He said creditors can assist Malawi by providing technical support to improve its debt management systems, promote fiscal discipline, and ensure greater transparency in borrowing and public financial management.
On his part, economist Bond Mtembezeka said enhanced technical support in the development of an integrated debt management framework will enhance risk analysis and management, public debt reporting and effective borrowing strategies.
World Bank chief economist and senior vice-president Indermit Gill noted that multilateral development banks are now acting as a lender of last resort, which he opined is “a role they were not designed to serve.”
“That reflects a dysfunctional financing system: except for funds from the World Bank and other multilateral institutions, money is flowing out of poor economies when it should be flowing in,” he said in a statement accompanying the report.
Malawi needs almost $1 billion (about K1.7 trillion) in debt relief from its creditors by 2027, the International Monetary Fund said on Wednesday, as it battles severe medicine, fuel and fertiliser shortages due to chronic foreign currency shortages.
In November last year, the International Monetary Fund (IMF) said Malawi need $887 million (about K1.5 trillion) in debt relief from 2023 to 2027 from its commercial creditors and $99 million (about K173 billion) from its bilateral creditors.
Malawi owed its main commercial creditors the African Export-Import Bank (Afreximbank) $495 million (about K867 billion) and Trade and Development Bank $395 million (about K692 billion) at the end of 2022.
Of its bilateral creditors, most was owed to China and India, $222 million (about K389 billion) to the Export-Import Bank of China and $114 million (about K200 billion) to Exim India.
Malawi is also still paying its bilateral creditors, but is in arrears to its commercial creditors, IMF mission chief Mika Saito said earlier in November.
Minister of Finance and Economic Affairs Simplex Chithyola Banda and Treasury officials were not immediately available for comment.
But in June this year, the minister said Malawi and China, one of the creditors, signed a supplemental loan agreement, a contract between a borrower and a lender that modifies the terms of an existing loan agreement, that will enable China to restructure the $206 million (about K361 billion) debt Malawi owes the Asian country. Malawi has a 2023-27 financing gap of $1.6 billion (about K2.8 trillion) and most of that is slated to be filled by the debt restructuring, with the rest from grants, concessional loans and the IMF loan, the IMF report said.
