Local financial advisory firm, Bridgepath Capital Limited, has projected a continued surge in the public debt to gross domestic product (GDP) ratio, saying it could hit 81.1 percent by 2027.
The projection is contained in Bridgepath Capital Limited’s Malawi Economic Indicator Projections for the period 2023 to 2027, released on Monday.
Cumulatively, Malawi’s total public debt has been growing over the past decades to K7.9 trillion, an equivalent of 69.93 percent of the GDP.
Of this stock, K4.43 trillion is domestic debt while K3.47 trillion is external debt.
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In the report, the firm has consolidated figures from the International Monetary Fund (IMF), the Economic Intelligence Unit, Oxford Economics and the World Bank.
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It quotes the World Bank noting that worsening fiscal deficits and the government’s increased domestic borrowing to fund these deficits are contributing to the rising debt stock.
The fiscal deficit is seen at K1.32 trillion or 8.7 percent of GDP in the 2023-24 national budget.
In the report Bridgepath Capital Limited says the fiscal deficit has been exacerbated by Cyclone Freddy, and spells doom that it is expected that domestic borrowing will continue in 2023 to fund this deficit.
But it says the IMF, the EIU, and the World Bank expect debt restructuring efforts by the government to be fruitful, and ‘this might reduce the debt burden in the medium term, it says it will have little impact on debt stock.’
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“However, this will not necessarily reduce the debt stock for Malawi. There is also hope that Malawi might get an ECF program, and this will likely reduce domestic borrowing, hence reducing the growth rate of public debt,” the report adds.
Associate Professor of Economics at Malawi University of Business and Applied Sciences Betchani Tchereni said the outlook remains mixed.
Tchereni added that if it goes unchecked, the situation will have a negative impact on the economy and Malawi could be rated poorly on its creditworthiness.
“We need to take care of three things which are prioritizing concessional loans, servicing and avoiding unproductive debt and growing the economy because if we do not do these things we have trouble ahead,” Tchereni said.
Another economist Edward Chilima said Malawi’s only hope is debt cancellation by its creditors.
He added that should this projection come to fruition, it will take a serious knock on the 10 year plan of the Malawi 2063 agenda as there will be not enough funds for development.
“There is a need to aggressively lobby for debt relief, restructure maturing debt to longer and better terms, borrow for productive sectors that can quickly produce results for import substitution and export promotion and replace expensive loans with cheaper loans,” Chilima said.
Minister of Finance Sosten Gwengwe did not respond on how the government intends to reverse the situation.
Malawi is implementing a debt restructuring strategy that serves as a cornerstone for restoring debt sustainability.
Both the World Bank and the IMF have said success of the ongoing external debt restructuring negotiations between Malawi and its creditors would help to ease the country’s debt burden.
