The World Bank has said Malawi remains among countries at higher risk of debt distress, a situation which requires quick interventions including restructuring of its debt.
A Malawi Economic Monitor (MEM) published by the Bretton Woods institution on Tuesday notes that the stock of public debt is estimated to have increased to 81.3 percent of gross domestic product (GDP) in 2023 from 75.7 percent a year before.
This represents a 21.3 percentage point margin against the 60 percent internationally recommended debt-to- GDP ratio.
“The November 2023 joint World Bank- International Monetary Fund (IMF) Debt Sustainability Analysis reported that both external and overall public debt remain in distress and are unsustainable under current policies.
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“The government intends to incur more foreign liabilities on concessional terms to finance the (budget) deficit.
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“Incurrence of foreign liabilities is expected to increase to 1.1 percent of GDP from an approved target of 0.8 percent of GDP, driven by both increased volumes of concessional borrowing and Kwacha disbursements becoming larger for a given amount of the dollar following the exchange rate adjustment. In turn, a slight reduction in the incurrence of domestic liabilities from an approved target of 6.4 percent of GDP to 6.3 percent of GDP is expected,” says the World Bank in the MEM.
It further notes that rising fiscal deficits and subsequent financing through high-cost domestic debt has resulted in domestic debt increasing, rising from 30 percent of GDP in 2021 to 42 percent of GDP in 2023.
External debt also rose and is estimated at 39.3 percent of GDP in 2023.
In an interview, World Bank Country Manager Hugh Riddell rated Malawi’s effort to address the rising public debt as mixed.
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“On the domestic debt, we have seen big increases over the past decade or so and that is a result of fiscal management, meaning we pass a budget but then there is a deficit that needs to be financed and that is becoming an acute issue for Malawi,” Riddell said.
But in a separate interview, Secretary to the Treasury Betchani Tchereni said the government is on the right path in managing its debt.
“For sustainability, you should not go beyond 60 percent but you understand that it has come to that level because of the Kwacha re-alignment. So, it is the same US dollar debt that has become more and that is why it has come to K12.8 trillion but the good thing is that we are doing two things that are quite important, first is rationalising our revenue collection but also focusing on production for exports and not consumption,” Tchereni said.
He said the government has taken a bold stance to cut the budget deficit for the 2024-25 financial year to K1.43 trillion, lower than the K1.645 trillion gap projected by the IMF.
