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The Debt Relief for Green and Inclusive Recovery says Malawi alongside 14 other African economies, has already breached solvency thresholds on its external debt.
This means that Malawi has reached a stage where its debt duties are no longer manageable in relation to its ability to produce resources for repayment, according to the report.
Economists say exceeding the solvency limit implies that the present value of upcoming debt responsibilities surpasses the nation’s capacity to generate adequate revenues (primarily through taxes, exports, and economic expansion).
Ironically, Debt Relief for Green and Inclusive Recovery argues that the International Monetary Fund and World Bank’s debt sustainability analysis (DSA), which has rated Malawi in debt distress, systematically understates risks by ignoring climate and sustainable development goals investment needs, leaving many African economies vulnerable.
Co-authors of the paper Alexander Dryden and Ulrich Volz state that without reforming the way sovereign debt sustainability is assessed, which is the first step towards addressing unsustainable debt exposures, African governments will remain caught between two impossible choices: servicing their debts at the expense of critical social and climate investment, or borrowing further to finance resilience and risk falling deeper into distress.
Reads the policy paper in part: “A more realistic framework that properly accounts for climate vulnerability, external shocks, and financing needs is essential to break this cycle.
“The worsening external debt situation warrants a concerted effort to tackle the debt crisis facing a large number of African low- and lower-middle income countries.”
Data show that public external debt has more than tripled since 2008, with significant increases in the debt owed to private bondholders.
The pain of this debt burden has been worsened by increases in global borrowing costs and a continued decline in African currencies versus the US dollar.
The proposal calls for comprehensive, equitable debt relief across all creditor classes, coupled with fresh concessional finance and strict transparency standards.
The International Monetary Fund earlier said despite making some progress in reprofiling official bilateral debt, Malawi is in arrears to its external commercial creditors ($669 million) at end2024) and there are large and protracted breaches of external debt burden thresholds.
There has been little progress on debt restructuring negotiations with the country’s external commercial creditors.
With limited recourse to external financing, persistent fiscal deficits have caused domestic public debt torise sharply, bringing total public debt to 88 percent of GDP as of end-2024.
Ministry of Finance and Economic Affairs data shows that as at September 2024, total public debt stock was K16.19 trillion or 86.4 percent projected gross domestic product, with external debt stock recorded at $4.27 billion (about K7.4 trillion).
Malawi Economic Justice Network executive director Bertha Phiri told Business News that considering that struggle to win in the restructuring deals and negotiations, African countries are now looking into efforts to delink themselves to the globalisation debt system.
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