Hope rises on debt Restructuring
The African Development Bank (AfDB) says the ratio of public debt to the gross domestic product (GDP) is projected to fall to 72.6 percent by 2026 from 76.6 percent in 2022.
The fall, according to the bank, will follow as the economy recovers and when most of the debt to African Export and Import Bank (Afrexim) and to Trade and Development Bank (TDB) will have been paid back.
In its 2023/28 Country Strategy Paper, the bank says unless the ongoing debt restructuring negotiations are concluded successfully, the public debt to GDP ratio could remain far above the 50 percent sustainability threshold throughout the medium-term.
Reads the paper in part: “Malawi’s debt restructuring negotiations with its bilateral creditors, including China, India, Spain, and Belgium, has progressed well and recorded some successes.
“However, progress on the debt restructuring negotiations with its commercial creditors [Afrexim Bank, and TDB] has been relatively slow.”
Success in the debt restructuring negotiations was one of the pre-conditions for Malawi to secure the International Monetary Fund(IMF) Extended Credit Facility (ECF) programme and budget support from other development partners.
The IMF has classified Malawi as a country in debt distress.
With the realignment of the kwacha, total public debt stock has increased from K10.6 trillion to K12.56 trillion.
External debt now accounts for 53 percent of the revised total debt stock while the remaining 47 percent is domestic debt.
Prior to the realignment, external debt accounted for 44 percent of the total debt stock while 56 percent was for domestic debt.
Minister of Finance and Economic Affairs Simplex Chithyola Banda indicated in his 2023/24 Mid-Year Budget Statement Review that the ongoing debt restructuring strategy will assist 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.
“Specifically, Government will continue mobilising domestic resources to finance the budget and spending will be done according to available resources.”
In the 2023/24 financial year, Treasury projects a widening fiscal deficit of K1.28 billion or 8.3 percent of GDP. The widening deficit is mainly on account of absorbing the impact of exchange rate correction.
