IMF positive on Malawi debt status

The International Monetary Fund (IMF) says Malawi’s debt is sustainable on a forward-looking basis following government’s commitment to the debt restructuring strategy.

The IMF’s position is contained in its November 2022 Key Questions on Malawi update.

Reads the IMF update: “The authorities hired debt advisers in May and have started to engage in debt negotiations with commercial, as well as official bilateral creditors.

“The authorities’ debt restructuring strategy—if implemented with a significant treatment of commercial debt and a reprofiling of official bilateral debt—would bring external debt service down significantly, and make Malawi’s debt sustainable with a moderate risk of debt distress in the medium-term.”

IMF also observes that a credible process to restructure commercial debt in line with its programme parameters and the Lending Into Arrears policy has been met.

Further reads the update: “Together with the authorities’ commitments for macro-economic adjustment and structural reforms under the Staff Monitored Program [SMP], Malawi’s debt is assessed to be sustainable on a forward-looking basis.”

Treasury figures show that as at end September 2022, the country’s total public debt stood at K7.3 trillion, up from K6.38 trillion in March 2022, representing an increase of 14 percent.

External and domestic debt accounted for 45 percent or K3.3 trillion and 55 percent or K4 trillion of the total debt.

As a percentage of gross domestic product, the total debt in nominal terms stands at 64 percent.

Of these debts, Treasury will this financial year pay K33 billion in foreign interests and K612 billion to domestic interests.

Minister of Finance and Economic Affairs Sosten Gwengwe told Parliament recently that to deal with the country’s debt sustainability, Treasury is currently engaging its creditors to restructure debts.

The minister also indicted that Treasury is mobilising in the Multi Donor Trust Fund under the banner Friends of Malawi as well as budget optimisation.

He said: “Government is committed to bring Malawi’s public and publicly guaranteed external debt back to a moderate risk of debt distress through policy adjustments.

“Over and above this, government has undertaken a bold fiscal adjustment in the medium-term and implemented measures to strengthen public debt management.”