High global interest rates to affect debt servicing—World Bank
The World Bank has warned that if high global interest rates are prolonged it will be difficult for Sub Sahara African (SSA) countries including Malawi to service their debts.
The Bretton-woods institution expressed this in its Global Economic Prospects for June 2024 where it said the need for debt reduction in highly indebted countries in the region has become substantial since the rising public debt-service costs emerged during the pandemic period.
Reads the World Bank report: “Public debt is expected to remain elevated over the forecast period. If global interest rates remain high for longer than assumed in the baseline forecast, debt-service costs for SSA economies are likely to rise even further.
“When coupled with limited access to external financing at favourable interest rates, rising financing costs could markedly increase the risks of government debt distress—especially because debt restructuring in several SSA countries has been hampered by coordination problems among a diverse group of creditors.”
This comes at a time Malawi’s interest payment allocation in the 2024/25 fiscal year hit K1.46 trillion which is over 43percent of domestic revenues of which K79.7billion is for external debt—according to the budget statement.
In an interview, finance expert Brian Kampanje described the development as a cause of concern for a country like Malawi which is desperately in need of debt restructuring.
Kampanje said: “This projection is a cause of concern for Malawi because although her multilateral lenders like the World Bank, International Monetary Fund (IMF) and Africa export and import bank (Afreximbank) showing much flexibility on her debt restructuring proposals, the case is not like that with some bilateral lenders.”
Kampanje has since said although the multilateral lenders consist of the large chunk of the country’s external debt, Malawi’s debt situation regarding restructuring therefore remains unresolved and shared the World Bank’s fears.
In a brief interview, former finance minister and economist Joseph Mwanamvekha said the country’s debt situation is already in a crisis saying the World Ban’s fear is real and the impacts have already started being felt now.
IMF director of the African Department Abebe Aemro Selassie recently said official creditors recently provided financing assurances, but the country’s other creditors have not yet done so.
As at December, of Malawi’s total external public debt of K6.62 trillion, K4.4 trillion is owed to multilateral creditors. The World Bank is the country’s largest creditor with K2.2 trillion or 33percent of Malawi’s total external public debt.
This means that only about one third of Malawi’s external public debt stock is under negotiation, with K1.7 trillion owed to commercial creditors mostly to African Export-Import Bank (Afreximbank) and Trade and Development Bank and K742 billion owed to bilateral creditors mostly China and Saudi Arabia.
Treasury Secretary Betchani Tchereni is on record having said Malawi is making big progress on her debt restructuring. He said most of the country’s creditors have pledged debt relief for Malawi.
