By Wezzie Gausi:
Malawi and China have signed a supplemental loan agreement which will see Beijing restructuring the $206 million debt that Lilongwe owes the Asian country, The Daily Times has established.
A supplemental loan agreement is a contract between a borrower and a lender that modifies the terms of an existing loan agreement.
The agreement may extend the maturity date, change the interest rate or modify the repayment schedule.
By signing a supplemental agreement, borrowers acknowledge new terms and agree to repay the loan according to the revised schedule.
The restructuring has made the debt to become interest-subsidised and concessional, implying that the interest rate is lower and the grace period has been extended by 78 months.
Finance Minister Simplex Chithyola Banda confirmed the development in an interview Wednesday.
He said the restructuring has provided a relief to Malawi such that the sustainability of the debt has improved.
Chithyola Banda described the debt restructuring as “very good news” for Malawi, especially regarding the status of foreign debt as the country has to pay in “hard-earned foreign exchange”.
“It must be very clear that these loans were obtained in 2009, 2011, 2013, 2016 and 2020 for various development projects and interventions.
“This agreement then allows us to release some resources which may be of use towards other obligations and also to improve our reserves as a country.
“Restructuring in this case is looking at the grace period and the interest rates more than the amounts. The amounts remain the same,” the minister said.
Commenting on the development, economist Marvin Banda said Malawi’s public debt is substantial enough to undermine efforts the country makes in economic development.
He said the debt restructuring is essential because it allows the country to free up certain constraints in the fiscal space currently reserved for debt repayment.
“This year alone, Treasury is servicing external debt amounting to $147 million or just over five percent of government spending. The nation may not realise gains it makes due the sheer amount paid to external debt.
“However, only about one-third of Malawi’s external debt is not owed to ‘super-senior creditors’, which are the multilateral development banks. This means that any efforts to restructure external debt will be undermined by the overwhelming proportion owed to institutions that are precluded from debt relief endeavours Treasury is aiming to make,” Banda said.
The economist added that the Chinese and Indian share of external debt which was enshrined in the Extended Credit Facility (ECF) negotiations is tiny in totality, but “it shows that is a step in the right direction”.
In April this year, International Monetary Fund Director of the African Department Abebe Aemro Selassie said the unaddressed debt situation in Malawi remains a concern.
Chithyola Banda said in a later interview with The Daily Times that Malawi was negotiating with its creditors on how best to restructure the debts.
He said government had so far engaged in “very progressive” debt restructuring talks with India, China, Kuwait Fund, Saudi Fund for Development, Afreximbank and Trade and Development Bank.
The IMF Board of Directors observed in November last year when it granted Malawi the $175 million EFC programme that successful external debt restructuring is vital as there is no reasonable mix of adjustment and financing alone that can achieve macroeconomic stability.
