Debt-stressed Malawi has received a $20 million (about K35 billion) respite from the Chinese Government which has also extended repayment period for some loans to 48 years to help ease the country’s financial burden.
Chinese Ambassador Lu Xu, speaking on the sidelines of the launch of a week-long orientation exercise of the 2025-2030 cohort of legislators in Lilongwe yesterday, said her country’s decision to write off part of Malawi’s interest-free debt follows recent consultations on partial debt cancellation between the two countries.
She said that China agreed to exempt Malawi from its obligation of repaying one batch of an interest-free loan that matured in 2024 to ease the country’s debt situation, further disclosing that her country has also effected tariff-free exports on agricultural exports to help spur the country’s economic growth.
Said Lu: “We set up a debt restructuring plan last year and prolonged the debt [repayment period] for Malawi for about 48 years, so that we can help Malawi to relax a little bit in debt.
“Furthermore, we are going to waive another two debts Malawi owes China. We have prolonged these debts so that we can give space Malawi to repay.”
The People’s Republic of China is Malawi’s fourth major external creditor with Ministry of Finance data showing that as of December 2021, Malawi owed China $239.22 million (about K244.36 billion), a jump from $233.74 million (about K238.76 billion) recorded in June 2021.
Ministry of Finance data further shows that as at September 2024, the country’s total public debt stock stood at K16.19 trillion or 86.4 percent of the projected gross domestic product (GDP), with external debt stock recorded at $4.27 billion (about K7.4 trillion) and domestic debt at $5 billion (about K8.79 trillion).
Africa Export-Import Bank (Afreximbank) and Trade and Development Bank (TDB) accounted for about nine percent of Malawi’s external debt stock as of early 2023 although the loans also represented about 76 percent of annual external debt service in 2022.
Commenting on the upcoming agriculture season, Lu said China has committed to help Malawi with fertiliser imports as well as foreign exchange to facilitate smooth preparations .
She said China will also help Malawi with emergency food assistance in the wake of hunger that has affected almost four million Malawians.
Minister of Finance, Economic Planning and Development Joseph Mwanamvekha yesterday said he will hold a press conference later this week to comment on the development.
Debt restructuring and relief are critical to Malawi’s economic recovery.
Meanwhile, Malawi Economic Justice Network (Mejn) regional coordinator for the South Mike Banda said this is good news to Malawi which is burdened by unsustainable debt.
He said government should make meaningful investment with the money that has been written off, while asking for more debt relief.
“We think as Mejn that Malawi’s debt needs to be cancelled. We advocated for this in early 2000s and we still think at the moment we need the same. But after cancellation of debt, we should tame our borrowing so that we don’t borrow for consumption and continue accumulating debt,” said Banda.
On his part, Mzuzu University economist Christopher Mbukwa also said beyond China’s gesture, Malawi should pray for more debt cancellation from other lenders.
However, he was quick to mention that the country should make good use of China’s freed resources.
“Sectors where we are taking these amounts should be able to spur growth so that by the time we are required to repay those loans, we should not struggle. The interest payments are taking more than 25 percent of our national budget which I think is bad for our economy,” said Mbukwa.
Published data from UK charity Christian Aid show that Malawi’s debts to Afreximbank and TDB had much shorter maturities with a high interest rate estimated at nine percent compared to 1.6 percent and 0.8 percent interest rates on the government and multilateral loans, respectively.
Of the external debt stock, Afreximbank debt is at $360 million (about K630 billion) while TDB is owed $371 million (about K650 billion).
Earlier this year, Treasury said government signed a supplemental agreement with Export-Import Bank of China, which is owed $201 million (about K352 billion) as at September 2024.
Malawi’s debt is higher than the 65 percent recommended by global financial institutions such as IMF and the World Bank.
Debt payments take up 43 percent of the country’s domestic revenues, limiting government’s capacity to spend on other budget lines. In the K8.076 trillion 2025/26 National Budget, K2.17 trillion is for public debt interest payments.
In 2022, China also cancelled K5.5 billion (about $3 million) non-interest rate loan extended to Malawi as part of a commitment to foster stronger economic ties with the African continent. Malawi was among 17 African countries that benefitted.
