The World Bank has said that foreign debt financing for poorest countries including Malawi will increase by 40 percent by next year.
This coms as Malawi remains among countries in the sub-Saharan Africa region at higher risk of debt distress with interest burden on public debt continuing rising.
But local authorities have lately intensified efforts toward securing a temporary relief through restricting.
For instance, the Treasury set a debt restructuring strategy which serves as a cornerstone for restoring debt sustainability.
The debt plan, according to a memorandum the government issued, is designed to achieve debt sustainability and close the financing gaps.
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In the World Bank 2023 International Debt report published last week, the Bretton Woods’ Senior Vice President and Chief Economist Indermit Gill said debt servicing costs on public and publicly guaranteed debt are projected to grow by 10 percent for all developing countries over the 2023– 24 period—and by nearly 40 percent for low-income countries.
Gill adds that countries eligible to borrow from IDA are likely to face a rough ride in the coming years, as these payments are consuming a larger share of export revenues, putting some countries just one shock away from a debt crisis and more than a third of this debt involves variable interest rates that could rise suddenly.
“Besides the steeper interest rates that all countries are paying on their debt, the poorest face an additional burden: the accumulated principal, interest, and fees they incurred for the privilege of debt service suspension under the Group of Twenty’s Debt Service Suspension Initiative.
“The exact costs of that privilege will not be known until the data are reported in 2024. But it is safe to say the costs will not be small—and poor countries will need more global help to ease their debt than they are receiving now,” Gill said.
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Presenting the recently passed national budget, Minister of Finance and Economic Affairs Simplex Chithyola Banda said with the realignment of the Kwacha, total public debt stock has increased from K10.60 trillion to K12.56 trillion.
Of this, external debt now accounts for 53 percent of the revised total debt stock while the remaining 47 percent is domestic debt as the external debt has moved from K4.66 trillion to K6.62 trillion.
“Government will continue addressing persistent budget deficits despite the pressure emanating from the exchange rate correction. Foreign support is expected to help us stabilize the economy thereby putting our economy on a growth trajectory,” Chithyola Banda said.
Malawi is currently categorised as a debt distressed nation by the International Monetary Fund as its debt has surprised 63 percent to the GDP.
But it has been working to bring external public debt back to a moderate risk in the medium term through a combination of policy adjustment and the necessary debt treatment.
Malawi has been engaging creditors such as China, India, and Afrexim Bank.
