Debt restructuring faces challenges

Betchani Tchereni

Implementation of the government’s debt restructuring strategy, which serves as a cornerstone for restoring debt sustainability, will continue facing challenges as the economy remains volatile, experts say.

Recently, the government developed a debt restructuring plan in a desperate attempt to narrow public debt, which rose astronomically since debt relief in 2006 and now hovers around K7.90 trillion or 69.93 percent of GDP. Out of this, K4.43 trillion is domestic debt while K3.47 trillion is external debt.

The government also engaged a debt adviser to support a credible process for restructuring based on adequate creditor engagement to ensure the approach taken delivers the necessary contributions in a sustainable manner.


The debt strategy, according to the memorandum, is designed to achieve debt sustainability and close financing gaps.

It says the strategy seeks to bring external public debt back to a moderate risk of debt distress in the medium term through a combination of policy adjustment and the necessary debt treatment.

But Economist from the Malawi University of Business and Applied Sciences Betchani Tchereni said in an interview the plan’s execution would be challenging as the operating environment continues to face challenges.


He said current threats emanating from Cyclone Freddy, coupled with non-committal efforts by the government to restructure debt and reduce spending, makes implementation of the plan challenging.

“We need to expedite the restructuring of debt and walk the talk on cutting expenditure because things are not being done in accordance with the plan,” Tchereni said.

Minister of Finance Sosten Gwengwe, however, remained upbeat that the debt sustainability plan is still intact despite the threats and that the government will stick to it.

He said after dealing with the effects of Cyclone Freddy, the government will re-strategise on the debt plan.

“Having sustainable debt is key to this government and spending prudently will not stop despite facing numerous challenges. Therefore, I can assure Malawians that the debt sustainability plan is still intact,” Gwengwe said.

On debt treatment, the government said Malawi is asking creditors to restructure debts and on grant mobilisation it said Friends of Malawi has been set up and donors are mobilising resources to bail out the country and the government will also focus on spending prudently.

However, in the proposed 2023-24 national budget, the deficit has increased to K1.32 trillion and will be financed through foreign borrowing amounting to K288.78 billion and domestic borrowing amounting to K1.19 trillion.

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