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The World Bank has bemoaned the failure to stabilise the local economy due to stalling of efforts to address rising fiscal and external imbalances.
In its analysis of the April 2025 Malawi Macro Poverty Outlook published at the weekend, the multilateral bank notes that structural challenges are compounded by fiscal slippages financed by high-cost domestic debt, with debt service consuming over 56 percent of domestic revenue in 2024.
The bank observes that while agreements to restructure official bilateral debt have been reached, progress on restructuring external commercial debt is advancing slowly.
Reads the outlook in part: “The country remains in external debt distress and the debt-to-GDP [gross domestic product] ratio has reached 90.2 percent. Quasi-fiscal activities, such as below-market sales of foreign exchange, have increased, posing fiscal risks.
“Official foreign-exchange reserves remain critically low, as inflows from official exports, foreign investment, remittances and grants have not kept pace with import demand. Consequently, foreign exchange is tightly rationed, and there is a growing spread between the official exchange rate and the parallel market rate.”
Treasury data shows that as of September 2024, public debt stood at K16.19 trillion, representing 86.4 percent of GDP, of which total external debt reached K7.39 trillion, while domestic debt amounted to K8.79 trillion.
Of this, commercial banks were the largest holders of domestic debt with K3.24 trillion seconded by the Reserve Bank of Malawi with holdings of K2.81 trillion. The rest of the holders collectively held K2.73 trillion.
In the K8.07 trillion 2025/26 National Budget, public debt interest is projected at K2.17 trillion or 8.4 percent of GDP and 49.2 percent of domestic revenues, estimated at K4.44 trillion.
Foreign debt interest is estimated at K61.2 billion while interest for domestic debt is projected at K2.11trillion.
At the same time, Treasury projects to borrow K2.33 trillion from the domestic market to help finance part of the K2.47 trillion deficit projected during the financial year.
In an interview, Centre for Green Economy in Developing Countries global lead Velli Nyirongo observed that heavy reliance on domestic borrowing is likely to crowd out private sector investment by driving up interest rates and exerting additional pressure on the banking system.
“This, in turn, will continue creating an unfavourable business environment, ultimately reducing tax remittances to the Malawi Revenue Authority. An escalating debt burden could severely limit fiscal space for future development initiatives.
“Given these constraints, achieving the outlined fiscal strategy will require tough decisions and unwavering financial discipline from the government.”
Minister of Finance and Economic Affairs Simplex Chithyola Banda said in the budget statement that through fiscal consolidation and debt restructuring, government has demonstrated remarkable effort to ensure the country’s public debt becomes sustainable.
He said: “Government in principle has reached agreements with all official bilateral creditors and is still negotiating with commercial creditors to restructure debt.
“Once the negotiations are completed, the initiative will ease the pressure on foreign exchange and provide fiscal space necessary for productive investment.”
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