The International Monetary Fund (IMF) has said despite making some progress in reprofiling official bilateral debt, Malawi remains in arrears to its external commercial creditors in excess of $669 million (about K1.2 trillion) by 2024.
In its 2025 Staff Report, the global lender said there are large and protracted breaches of external debt burden thresholds, adding that limited recourse to external financing and persistent fiscal deficits have caused domestic public debt to rise sharply.
IMF said this has brought total public debt to 88 percent of gross domestic product (GDP).
Reads the report in part: “Elevated debt levels represent a source of fragility in the context of a shifting geopolitical landscape and Malawi’s vulnerability to shocks.
“Even with an external debt restructuring, reducing risks to public debt sustainability will require a sustained medium-term macroeconomic adjustment and steps to substantially reduce the domestic interest bill, including through a sustained fiscal adjustment and new external concessional financing.”
Meanwhile, IMF projects the interest bill, primarily owed to domestic residents, to rise to eight percent of GDP in the 2025/26 financial year and that by 2026, the interest bill is anticipated to exceed 40 percent of total government revenue, including grants and this elevated level is expected to persist over the medium-term.
The joint World Bank/IMF 2025 Debt Sustainability Analysis (DSA) classifies Malawi’s external and overall public debt as “in distress,” consistent with the findings of the previous November 2023 DSA.
The DSA suggests that a primary deficit of about one percent of GDP is required to stabilise public debt and that over the medium-term, the primary balance should reach a surplus of about two percent of GDP to build fiscal buffers, support more development spending, reduce inflation and fill the gap in donor financing for health and education.
Ironically, World Bank data show that domestic primary balance, excluding Reserve Bank of Malawi (RBM) recapitalisation costs and dividends, is -2.9 percent of GDP against 0.5 percent in the mid-year budget and -1.9 percent in 2023/24 fiscal year.
Ministry of Finance and Economic Affairs spokesperson Williams Banda was yet to respond to our questions by press time at 4pm yesterday.
But last week, RBM said it has negotiated better debt restructuring terms with Afreximbank and Trade and Development Bank following a fall-out with the IMF.
Speaking during the RBM Monetary Policy Committee Technical Forum in Blantyre last week, RBM director of economic policy and research Mark Lungu said RBM has negotiated that some of the loans be repaid in local currency while the others in dollars as these regional creditors have business interests in Malawi and that payment has started.
But in June this year, Afreximbank said it was not engaged in debt restructuring negotiations related to any of its member countries, including Malawi as doing so would be inconsistent with the bank’s establishment treaty.
In an interview on Monday, Scotland-based Malawians economist Velli Nyirongo said such arrears affect the country’s creditworthiness and standing with investors, potentially leading to higher borrowing costs and more limited access to future external financing.
He said they also often trigger legal and financial repercussions, including the possibility of creditors pursuing formal debt recovery actions or accelerating debt claims.
As part of efforts to qualify for the four-year $175 million (about K306 billion) Extended Credit Facility, which automatically terminated on May 15 this year, IMF had set addressing unsustainable public debt as one of the prerequisites for its support.
Borrowing by a government is deemed to be sustainable when it is below 50 percent of GDP, comprising domestic borrowing of not beyond 20 percent of GDP and external borrowing not exceeding 30 percent of the broadest measure of economic activity, according to the IMF.
Ministry of Finance and Economic Affairs data show that as at September 2024, total public debt stock was K16.19 trillion or 86.4 percent projected GDP, with external debt stock recorded at $4.27 billion (about K7.4 trillion) while domestic debt was recorded at $5 billion (about K8.79 trillion).
