The World Bank says despite Malawi instituting several fiscal and structural reforms, implementation has been in piecemeal with momentum fast waning.
In its latest country development analysis, the Bretton Woods institution cited debt restructuring, whose negotiations have proceeded slowly.
The bank noted that multiple price distortions that include an overvalued exchange rate, remain prevalent, countering efforts to restore macroeconomic stability and create foundations for sustainable and inclusive long-run growth.
Reads the analysis in part: “Debt restructuring negotiations have proceeded slowly, with the authorities only concluding negotiations with China. Negotiations with commercial creditors and other bilateral creditors are still ongoing.
“Multiple price distortions, including an overvalued official exchange rate, remain prevalent in the economy and have resulted in widespread resource misallocation and complicated efforts towards macroeconomic stabilisation.”
The World Bank further observed that the commitment to increasing exchange rate flexibility announced in November 2023 has yet to be implemented, with the exchange rate premium in the informal market widening further, reflecting increasing distortions in the foreign exchange market.
In November last year, the Malawi Government secured a $175 million (about K306 billion) International Monetary Fund (IMF) four-year Extended Credit Facility (ECF) programme to stabilise the economy and ensure sustainable growth.
Malawi has implemented a series of reforms that Capital Hill said were tough, but necessary to convince development partners that the country is committed to reforms to revitalise the ailing economy.
Among others, the Reserve Bank of Malawi has tightened monetary policy by maintaining the policy rate at 26 percent and devalued the kwacha by 44 percent in November last year.
In an interview on Monday, Scotland-based Malawian economist Velli Nyirongo observed that while the ECF seeks to stabilise economies and support reform, Malawi’s recurrent failure to comply with its conditions underscores the need for a more robust and transformative approach to economic governance.
He said: “Malawi’s policy orientation marked by a reliance on imports, exacerbates economic vulnerabilities, particularly in the balance of payments.
“Going forward, it is imperative for Malawi to address these structural weaknesses by cultivating fiscal discipline, rethinking its import-dependent economic model and formulating policies that promote domestic production and export diversification.”
In his 2024/25 Mid-Year Budget Review Statement presented in Parliament last Wednesday, Minister of Finance and Economic Affairs Simplex Chithyola Banda admitted that the scarcity of foreign currency on the market has contributed to unstable general prices, adding that government has stepped up its efforts to address the shortage.
On debt restructuring, he said “significant” progress has been made, with official agreements reached with some of the major bilateral creditors, including China.
Said Chithyola Banda: “Discussions with the remaining bilateral creditors, including India, Kuwait Fund and Saudi Fund for Development are being fast-tracked with the objective of reaching the necessary debt treatment in line with the IMF programme requirements.
“Negotiations in good faith are ongoing with the African Export-Import Bank and the Trade and Development Bank. Both institutions expressed their willingness to support our endeavours to restore debt sustainability and our teams are converging towards a mutually agreeable solution.”
Data contained in the 2023 World Bank International Debt Report, an annual report that features debt statistics and analysis for countries, shows that Malawi paid $77 million (about K134.8 billion) in principal payments and $24 million (about K42.4 billion) in interest at the end of 2023.
As a percentage of the gross domestic product, Malawi spent more than 12 percent of its export earnings on debt servicing, about twice higher than the six percent average paid by International Development Association member countries over the same period.
