President Lazarus Chakwera has pleaded with Afreximbank to consider a debt restructuring plan that would allow Malawi to secure the International Monetary Fund (IMF)’s Extended Credit Facility (ECF).
Currently, Malawi owes Afreximbank and Trade and Development Bank (TDB) a total of $850 million [about K850 billion] which the IMF wants to be squared before committing to the ECF.
Malawi’s next assessment for its readiness for the ECF is due end this month.
Chakwera told Afreximbank President Benedict Oramah on Sunday evening, on the sidelines of the 30th Afreximbank Annual Conference currently underway in Accra, Ghana, that the ECF would help in restoring Malawi’s repayment capacity by rebuilding reserves and reducing the macroeconomic imbalances the country is suffering from.
“Our engagement with you regularly over the past few months was, therefore, in pursuit of a debt restructuring mechanism that would allow us to fully restore debt sustainability and unlock an ECF for Malawi that would eventually yield dividends for both Malawi and the bank,” Chakwera said.
On his part, Oramah assured Chakwera that Afreximbank is in solidarity with Malawi’s pursuit of the debt restructuring mechanism to secure the ECF.
“We will do everything we can to resolve the issues and it is always refreshing listening to your commitment and understanding of the issues we are dealing with, Mr President,” Oramah said.
The Afreximbank president said his institution has, for a long time, provided financial support to Malawi, which is one of the founding shareholders of the bank some 30 years ago.
Malawi’s debt with Afreximbank and TDB was contracted between 2017 and 2019.
Between 2017 and 2019, Malawi contracted about $550 million [about K550 billion] from Afreximbank, mainly through currency swaps, which matured around 2020.
Malawi’s exposure with TDB stands at around $337 million.
Speaking during the 2023 Malawi Investment Summit, Presidential Economic Adviser Chancellor Kaferapanjira said the government is praying that some creditors may accept debt swaps, which would see Malawi paying the debt to local charities.
A debt swap is a transaction in which obligations or debts of a company or individual are exchanged for something of value, namely equity.
In a debt-for-adaptation swap, countries who borrowed money from other nations or multilateral development banks could have that debt forgiven if the money that was to be spent on repayment was, instead, diverted to climate adaptation and resilience projects.
According to Kaferapanjira, in the debt restructuring that Capital Hill has had with some lenders, it has been advancing the narrative.
“The discussion which we have had is that some of the international financial institutions may accept a swap of the debts so that, instead of us paying back the loans, we may have to pay some charities that are here so that they can finance the humanitarian needs of the country.
“So, the economy in this country— from the angle of government— is all around how much debt the country has because the mandatory payments alone are about 76 percent of the total expenditure and that leaves little fiscal space for government to finance even productive infrastructure,” Kaferapanjira said.
According to Kaferapanjira, authorities believe that the negotiations they are having with China, India, TDB and Afreximbank are pointing in the right direction.
“We think that once the restructuring deals are agreed, we should, over a period of time, have a bit of fiscal space and, then, have a bit of money in order to finance development,” he said.
