Malawi’s ever-rising public debt currently at K15.17 trillion has drawn the attention of the World Bank and United States of America which have stressed the need for consolidation of the country’s fiscal position.
In separate written responses to The Nation questionnaire, the two noted that at an equivalent of 81 percent of gross domestic product (GDP), the debts were suffocating other sectors.
World Bank country manager Firas Raad said the Malawi Government was running the highest budget deficits in Africa over the past two years, a development that has pushed up domestic debt in the process.
He said the bank believes that public debt at unsustainable levels stifles growth and the most vulnerable citizens in society, warning that the situation has the potential to inhibit private investment, increase pressures on social and infrastructure spending and limit governments’ ability to implement reforms.
Said Raad: “At present, there is need for the government to consolidate its fiscal position. To put this into perspective, in the 2024/25 financial year, out of a total debt service of K1.67 trillion, only K447 billion is to external creditors. Therefore, stabilising domestic borrowing is very urgent at the moment.”
Fiscal consolidation refers to the implementation of policies aimed at reducing government deficits and debt accumulation.
To ease the pressure on Malawi, Raad said the World Bank has focused on extending grant financing instead of debt cancellation.
“Since 2022, Malawi has been a grant-only country and the World Bank has disbursed over $1.6 billion [K2.7 trillion] out of which nearly $1 billion [K1.7 trillion] are grants and the balance are highly concessional credits with an interest rate of 0.75 percent,” he said.
In a separate response, US Embassy public affairs officer Grant Phillipp said Malawi should minimise delays in reaching agreements on debt restructuring with some of its international creditors.
He cautioned the government against pursuing deals with some investors that could undermine the country’s agreements with the International Monetary Fund (IMF) and bilateral creditors.
Said Phillipp: “It should also address low revenue collection, ballooning expenditures and delayed full implementation of the Integrated Financial Management and Information System [Ifmis].”
He said US assistance to Malawi is mostly in the form of grants or cooperative agreements, unlike loans, saying Malawi does not need to pay back these grants.
“The US provides approximately $350 million [K606 billion] per year in bilateral assistance to Malawi,” said Phillipp.
The sentiments echoed what US Department of the Treasury deputy assistant secretary Eric Meyer, during his August 2024 visit to Lilongwe, said that the Joe Biden’s administration was concerned with indications that “Malawi may not meet the commitments necessary to receive a second tranche of the Extended Credit Facility [ECF]”.
He said: “I have expressed my deep concern in all my interactions with our government counterparts about how this will impact all Malawians, and particularly Malawi’s most vulnerable citizens.”
In its annual public debt report for June 2024, Ministry of Finance and Economic Affairs said the International Development Association (IDA), a member of the World Bank Group, continues to be the largest creditor to the Government of Malawi.
“The second largest creditor is the ADF with a holding of $467.11 million [K808 billion] followed by the IMF at 11 percent, Afreximbank at 9 percent and Trade and Development Bank at 9 percent,” reads the report.
Economist Bond Mtembezeka recently observed that considering the resource shortages that are swelling public debt, “what remains is for the government to allocate aid efficiently and productively”.
Both Minister of Finance and Economic Affairs Simplex Chithyola Banda and Secretary to the Treasury Betchani Tchereni were not immediately available to comment on the debt concerns expressed by the US and World Bank.
But Tchereni is on record as having said Malawi is making progress on her debt restructuring with most of the country’s creditors.
He also indicated that government was securing support from development partners that will help with the fiscal needs to deal with the weather-related shocks that have pushed up the country’s deficits.
