Malawi’s borrowing costs remain locked at elevated levels due to the government’s reliance on debt rollovers that keep Treasury yields high, leading to wide interest rate spreads and squeezing space for cheaper private sector lending.
Figures from the Reserve Bank of Malawi show that at least K415 billion in Treasury securities are falling due in January 2026, with further maturities lined up for February and March.
To refinance these obligations, it means government should repeatedly tap from the domestic market, sustaining demand for bank liquidity and anchoring yields at high levels.
The yield curve remains steep and unchanged with 91-day Treasury bills yielding about 16.3 percent, 364-day bills around 24.5 percent while 10-year government bonds hover near 35 percent, the data further show.
The elevated yields feed directly into borrowing costs across the economy. Average lending rates are around 37.3 percent, while depositors earn roughly 4.3 percent, leaving an interest rate spread of about 33 percentage points, the widest among selected regional peers.
Economists contend that this dynamic illustrated fiscal dominance, where government financing needs dictate market pricing and weaken the effectiveness of monetary policy.
In an interview on Wednesday, Scotland-based Malawian economist Velli Nyirongo warns that reliance on domestic borrowing heightens the country’s vulnerability to external shocks at a time of slowing global growth and rising protectionism.
“High public debt and dependence on domestic borrowing expose the economy to shocks, especially when export demand weakens and access to concessional financing tightens,” he said.
Nyirongo pointed to Malawi’s narrow export base, low foreign reserves and rising debt service costs as factors compounding risks.
Market analysts say within the banking system, high-yield government paper remains attractive and they offer predictable, low-risk returns, encouraging banks to allocate surplus liquidity to sovereign assets rather than to private sector lending.
The impact is already visible in credit trends. According to the Reserve Bank of Malawi October 2025 Monthly Economic Review, private sector credit fell by K35.6 billion month-on-month to K2.2 trillion, driven mainly by declines in commercial and industrial loans (–K37.2 billion) and foreign-currency loans (–K18.7 billion). Household and mortgage lending also weakened.
Bankers Association of Malawi president Phillip Madinga said in an interview on Wednesday that wide interest rate spread reflects systemic pressures rather than isolated bank pricing.
He said lenders operate in an environment shaped by high operating costs, regulatory requirements, risk considerations and government borrowing.
Madinga, who is Standard Bank Malawi plc chief executive, said: “Notwithstanding, we recognise these as systemic issues and remain committed to working with government, regulators and stakeholders.
Economics Association of Malawi president Bertha Bangara-Chikadza said sustained fiscal consolidation would have the most immediate impact of reducing government borrowing, improving inflation expectations.
