Govt eyes K1tn cut in external debt

Malawi could see its external debt declining by about $592 million (K1 trillion) if the country’s proposed debt restructuring strategy is successfully implemented.

If the proposed strategy works out, it could result in the decline of the debt-to-gross domestic product (GDP) ratio, which now hovers at over 80 percent to below 30 percent in the medium-term.

The strategy indicates this would be achieved through significant maturity extension and re-profiling of scheduled payments to provide important near-term liquidity relief and to bring down Malawi’s external debt servicing costs.

Reads the strategy in part: “The strategy also relies on the following pillars to overcome current external debt challenges, including solvency and liquidity concerns, bringing external public debt back to a moderate risk of debt distress in the medium-term through a combination of policy adjustment and the necessary debt treatment.”

The strategy further says the mobilisation of non-debt-creating flows will ensure that external and fiscal financing gaps are closed over the programme period, including through the debt treatment and the mobilisation of external grant support from development partners.

In its analysis of the government debt strategy, investment advisory firm Nico Asset Managers Limited observed that while debt restructuring is expected to ease the debt-repayment schedule, delays to restructure debt poses downside risks to Malawi’s medium-term growth outlook.

International Monetary Fund (IMF) had indicated last November that Malawi’s efforts to stabilise its economy will count to nothing unless the country secures debt forgiveness on $976 million (about K1.6 trillion) owed to commercial and bilateral creditors. Of the K12.56 trillion total public debt, external debt at K6.62 trillion accounts for 53 percent of the GDP.

 Data from the IMF shows that Malawi owes the Export-Import Bank of China $414 million and the Export-Import Bank of India $222 million (about K703 billion), representing about 80 percent of the debt owed to the non-Paris Club or four percent of the total debt.

Malawi also owes the African Export-Import Bank (Afreximbank) about $495 million (about K841 billion) and Trade and Development Bank, formerly PTA Bank, $395 million (about K671 million) at the end of 2022.

According to the IMF, China and India “have provided specific and credible assurances that they will provide debt relief in line with programme parameters”.

In an interview on Sunday, economist Bond Mtembezeka said failure to restructure the debt could be catastrophic for the country’s economy.

“Restructuring debt is just one part, the most important element is to ensure that government supports the economy and keep the debt in check,” he said.

IMF resident representative Nelnan Koumtingue is quoted as having said that a prolonged debt restructuring process may delay the return to normal economic activity, prolong the loss of market access, make trade finance unavailable and undermine foreign direct investment.

Minister of Finance and Economic Affairs Simplex Chithyola Banda was not available for comment, but he said in the 2023/24 Mid-Year Budget Review Statement that ongoing debt restructuring strategy will help to bring public debt levels to moderate risk in the medium-term.

“Government will ensure that in the medium-term, public debt levels go down by containing the budget deficit,” he said.