The International Monetary Fund (IMF) says domestic borrowing is emerging as a key tool for African economies, including Malawi, to reduce exposure to external shocks and support financial market development.
But economists warn that Malawi is failing to realise these benefits as it depends on local debt to manage a deepening fiscal crisis.
An article published in the IMF Finance and Development Magazine indicates that borrowing in local currency shields governments from exchange rate volatility and reduces reliance on global markets while helping to build domestic capital markets.
Reads the article in part: “Flourishing domestic debt markets can also support broader macroeconomic growth and provide buffers against economic shocks.
“Regular issuance of domestic debt enhances central banks’ tool kits for monetary policy operations, making it easier to steer the economy and keep inflation in check.
However, Malawi, currently in debt distress with a debt-to-gross domestic product (GDP) ratio of above 90 percent and largely shut out of international capital markets, has turned to domestic borrowing as a last resort to finance persistent fiscal deficits.
Ministry of Finance, Economic Planning and Decentralisation data show that domestic debt stood at K16.01 trillion at the end of December 2025, representing 61.3 percent of GDP.
University of Malawi economics lecturer Edward Leman said in an interview on Sunday that excessive government borrowing from the domestic market is crowding out private sector credit.
However, he said the issue is not domestic borrowing itself.
“The central issue is not borrowing per se, but the use and effectiveness of borrowed resources,” he said, warning that Malawi is experiencing a double burden of high debt costs without corresponding growth.
Leman said if debt is not channelled into productive uses, repayment often requires additional borrowing, creating a self-reinforcing cycle of debt accumulation.
Budget and Finance Committee of Parliament chairperson Sosten Gwengwe said the country faces overlapping macroeconomic pressures.
“We are facing a fiscal deficit crisis, a balance of payments crisis and a debt crisis,” he said, noting that rising interest payments are absorbing resources that could support development.
Economists say the consequences are already visible in financial markets and private sector activity.
In a separate interview, Scotland-based Malawian economist Velli Nyirongo said the country’s current approach reflects structural weaknesses rather than strategic debt management.
“Domestic borrowing can support resilience and growth, but only when it is part of a broader, well-managed economic strategy,” he said.
The domestic debt pressure is reflected in rising debt levels, with per capita public debt estimated at between K1 million and K1.2 million in the current budget that ends on March 31.
Analysts say the current model characterised by short-term borrowing, high interest costs and heavy reliance on commercial banks is limiting credit to businesses and constraining growth.
Over the past three months, government has drastically reduced its borrowing through government securities.
