China to write off K5.5bn Malawi debt

Malawi will have K5.5 billion non-interest rate loan owed to China written off as part of China’s response and commitment to foster stronger economic ties with the African continent.

The news has excited Treasury and economic commentators, who say this will help the country address immediate needs.

During the Forum on China-Africa Cooperation Conference held virtually last week, Chinese Foreign Minister Wang Yi said the Chinese Government has waived 23 interest-free loans for 17 African countries.

He said: “Over $3 billion has been delivered out of the $10 billion in credit facilities China pledged to African financial institutions, and nearly $2.5 billion in loans were channelled to Africa’s priority programmes. 

“All this is a demonstration of how the Chinese government backs up its words on African development with concrete action.”

The move could relieve Malawi of its obligation to repay its external debt which has rapidly risen in recent years, putting the country at high risk of public debt distress.

According to the 2022/23 financial statement published by Treasury, total public debt stock as at December 31 2021 stood at K5.8 trillion, or 56.8 percent of the rebased gross domestic product (GDP), as compared to a stock of K5.45 trillion or 58.8 percent of GDP in June 2021.

The figures show that  as of December 2021, the People’s Republic of China, Malawi’ s fourth top external creditor, was owed $239.22 million (about K244.36 billion) a jump from $233.74 million (about K238.76 billion)  recorded in June 2021.

The waiver thus means that Malawi would pay K5.5 billion less of the K244.36 billion to China, which accounted for 6.96 percent of Malawi’s public debt stock as at December 2021. 

Minister of Finance and Economic Affairs Sosten Gwengwe yesterday said the debt relief will help the country address immediate needs, specifically budget financing.

“This is a relief to our country as the money saved could be used for budgetary support and other crucial needs,” he said in a brief response on WhatsApp.

According to Gwengwe, the loan, which was taken in 2011, was used to finance the Karonga-Chitipa Road.

Catholic University economics lecturer Hopkins Kawaye yesterday described the news as positive for Malawi, saying debt repayment suspension could free more resources to help ease the debt burden the country is facing.

On his part Malawi University of Business and Applied Sciences associate economics professor Betchani Tchereni also described the move as good news to her, considering how the country is struggling with loans. 

He said: “This will relieve the government as it will save in terms of foreign currency repayments and also the pressure to find resources to pay the loans.”

Over the years, Malawi has benefited from its relationship with China through, among others, the construction of the Parliament Building, Bingu National Stadium, the Karonga-Chitipa Road, the Bingu International Convention Centre and The President’s Hotel, the Malawi University of Science and Technology and the Presidential Villas.

Some of the loans Malawi benefitted from China include $80 million for the Malawi University of Science and Technology, $110 million for Bingu International Conference Centre and the $60 million for Bingu National Stadium.