The World Bank has said the success of the ongoing external debt restructuring negotiations between Malawi and its creditors would help ease the country’s debt burden.
The World Bank has expressed the views in its 17th Malawi Economic Monitor (Mem) released last week.
The observation comes at a time Malawi’s public debt was seen at K7.9 trillion as at the end of December 2022.
According to the bank, rising total public debt and debt servicing costs pushed public debt into distress.
It adds that weak performance of the external sector and insufficient revenue mobilisation over many years have contributed to worsened debt vulnerabilities, already pressured by rising debt and debt servicing costs.
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“The joint World Bank-IMF November 2022 Debt Sustainability Analysis reported that public debt is in distress under current policies but ongoing external debt restructuring negotiations with commercial and bilateral creditors will help bring debt on a downward trajectory over the medium term.
“The negotiations remain ongoing and focus on interest rate deductions, repayment moratoria, as well as extending the maturity profile of both commercial and bilateral external debt to reduce refinancing risk and thus contribute to easing the pressure on forex reserves,” the bank said.
According to the Mem, public debt increased to 75.2 percent of GDP in December 2022, up from 61.5 percent of GDP in December 2021.
The Bretton Woods institution says the jump was driven by both domestic and external debt.
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“The government’s recourse to mainly finance high fiscal deficits with high-cost domestic borrowing contributed to domestic debt reaching 40.8 percent of GDP in 2022, up from 30 percent in 2021.
“External debt also increased to 34.4 percent in 2022, from 31.5 percent of GDP in 2021. This was driven by conversion of short-term swaps, which were contracted for increasing liquidity, into medium-term swaps,” the bank says.
