IMF stresses debt write-off need
The International Monetary Fund (IMF) says Malawi’s efforts to stabilise its economy will count to nothing unless the country secures debt forgiveness on $976 million owed to commercial and bilateral creditors.
According to the IMF data, the country’s total public debt stock as of December 2022 hit an astonishing K14.7 trillion or 76 percent of the gross domestic product (GDP) in local currency value.
Of the total debt stock, $4 billion (K6.8 trillion) is external debt while $4.69 billion (K7.9 trillion) is domestic debt.
The rise in public debt and the debt payment obligations that follow it have created a financing gap of about $1.6 billion that is supposed to be filled by debt restructuring, grants, concessional loan and the financial support accrued from the $175 million Extended Credit Facility (ECF) that the IMF Executive Board approved on November 15.
In a country report released on Wednesday evening, IMF said “further delays in the restructuring of Malawi’s external debt would put at risk macroeconomic stabilisation”.
Reads the report in part: “The risks of moving forward with the ECF arrangement without an agreement in principle between the Malawian authorities and their commercial creditors on over $877 million [55 percent of total financing gap] of debt relief in line with programme parameters are significant.”
It further shows that Malawi also needs debt relief on $99 million owed to its bilateral creditors.
The report echoes IMF second deputy managing director Gita Gopinath remarks after the approval of the ECF that “successful restructuring is vital as there is no reasonable mix of adjustment and financing alone that can deliver macroeconomic stability”.
Reacting to the situation, economic analyst Gilbert Kachamba agreed with the IMF’s assessment, saying Malawi’s failure to secure debt relief could “strain the country’s finances, impacting its ability to implement the 2023/24 budget effectively”.
But Minister of Finance and Economic Affairs Simplex Chithyola Banda has allayed concerns that the delays would undermine the push for macroeconomic stability, saying Malawi has already made significant progress with its bilateral and commercial creditors.
“The negotiations with our creditors are going well,” he said yesterday in a telephone interview.
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, representing about 80 percent of the debt owed to the non-Paris Club or four percent of the total debt.
In a statement issued on November 15 2023, IMF confirmed that China and India “have provided specific and credible assurances that they will provide debt relief in line with programme parameters”.
The IMF approved Malawi’s ECF after getting a commitment from bilateral creditors China and India to restructure their portion of its external debt.
Malawi also owed the African Export-Import Bank (Afreximbank) about $495 million and Trade & Development Bank, formerly PTA Bank, $395 million at the end of 2022.
