External debt costs up 87% in 5 years—report

Malawi’s external debt service costs have risen by 87 percent in five years, a development analysts say has shifted scarce resources away from critical needs and placed the country on a path to crisis.

Debt service payments, which include principal and interest, has risen from $54 million (about K92 billion) in 2018 to $101 million (about K171 billion) in 2022, according to World Bank data contained in the 2023 International Debt Report, a compilation of statistics covering external debt of 167 low and middle-income countries.

The data shows that in the five years to 2022, Malawi has paid $96 million (about K163 billion) in interest payments on external debt, with $12 million (about K20 billion) spent in 2018, with the expenditure rising to $17 million (K28 billion) in 2019, and went up further to $21 million (K35 billion) in 2020. The expenditure went again up to $22 million (K37 billion) in 2021 and rose against to $24 million (K41 billion) in 2022.

In a statement accompanying the report, World Bank Group chief economist and senior vice-president Indermit Gill said the situation warrants quick and coordinated action by debtor governments, private and official creditors and multilateral financial institutions for swifter restructuring arrangements.

He said: “Record debt levels and high interest rates have set many countries on a path to crisis.

“Every quarter that interest rates stay high results in more developing countries becoming distressed and facing the difficult choice of servicing their public debts or investing in public health, education, and infrastructure.”

Interest payments consume an increasingly large share of national budget, with Treasury data indicating that of the total K4.33 trillion expenditure in the current fiscal year, government plans to spend K931.48 billion on interest.

Of this, K94.8 billion will be spent on external debt while K836.7 billion is projected to be spent on domestic debt.

In an interview yesterday, Malawi Economic Justice Network executive director Bertha Phiri lamented slow progress towards the implementation of debt strategies, urging authorities to speed up the process.

“We need to see to it that we are implementing these mechanisms,” she said.

The rising debt costs is coming at a time combined allocation to key social sectors as a share of total government expenditure has been on the decline in recent years, with United Nations data indicating a “gradually decline of six percent from 35 percent in 2019/20 to a five-year low of 29 percent in 2023/24 fiscal year.

Minister of Finance and Economic Affairs Simplex Chithyola Banda was not available for comment, but he is on record as having said government will ensure that in the medium-term, public debt levels go down by containing the budget deficit.

Malawi is currently classified as a country in debt distress with the total public debt stock at K14.7 trillion or 76 percent of gross domestic product, according to IMF.