By Deogratias Mmana:
Malawi’s public debt has quickened by K2.54 trillion in the first six months of 2024 to hit K15.1 trillion, official figures from the Ministry of Finance have shown.
The development means that in the four years that the Tonse Administration has been in power, public debt has astronomically risen by 11 trillion from K4.1 trillion, almost quadrupling to K15.1 trillion.
Economic analysts have described the development as an indication of gross economic mismanagement and the government’s failure to have a grip on the economy.
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In February this year, when he presented the 2024-25 national budget statement, Finance Minister Simplex Chithyola Banda told Parliament that, as at December 2023, public debt stood at K12.56 trillion.
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But according to the latest Quarterly Debt Bulletin for 2024-25, posted on the Ministry of Finance’s website, the debt has shot up by K2.54 trillion between January 2024 and June 2024 and now stands at K15.17 trillion.
In United States dollar terms, public debt is now equivalent to $8.75 billion.
With Malawi’s population estimated at 20 million, the growth in total public debt means that each Malawian, young or old, now has a K758,500 bill on their head.
According to the Ministry of Finance, domestic debt stock stands at K8.01 trillion (or $4.62 billion) while external debt stock stands at $4.13 billion (or K7.16 trillion).
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“As at end-June 2024, the external debt stock was $4.13 billion (K7.16 trillion). Of this amount, $1.05 billion was owed by the Reserve Bank of Malawi (RBM) and $3.08 billion was owed by the Government of Malawi.
“Since end-March 2024, the external debt stock has increased by $23.39 million or 0.6 percent. Malawi’s external debt stock is primarily denominated in Special Drawing Rights and the external debt stock is primarily owed to multilateral lenders. All of Malawi’s external commercial debt is in the form of loans and is at [a] fixed rate,” the bulletin reads.
On domestic debt, the bulletin says of the K8.01 trillion, K6.19 trillion were Treasury notes (77.3 percent); K799.61 billion were Treasury bills (10.0 percent); K677.66 billion [8.5 percent) were promissory notes; K198.47 (2.5 percent) was in Ways and Means advances from the RBM; and MK146.66 (1.8 percent) was in the form of domestic loans.
According to the Treasury, total debt service in quarter one amounted to K775.29 billion, of which total amortisation (principal repayment) was K419.33 billion and total interest was K355.96 billion.
Furthermore, domestic debt service was K720.81 billion and external debt service was K54.48 billion.
Responding to the issue, Economics Association of Malawi President Bertha Chikadza said the debt escalation raises concerns as it poses substantial risks to economic stability and development.
“The heavy debt burden threatens to consume a large portion of the national budget, undermining development initiatives intended to benefit poor Malawians and eroding their purchasing power.
“While borrowing may sometimes be necessary, the government must adopt a balanced approach to ensure debt sustainability and prudent fiscal management. Alternative strategies include increasing revenue collection, maintaining fiscal discipline, promoting economic diversification and optimising State-owned assets,” Chikadza said.
She said the government should reduce its reliance on borrowing, foster sustainable economic growth and secure a prosperous future for its citizens.
“Urgent action is needed to address the country’s debt crisis, strengthen fiscal discipline and enhance transparency and accountability,” she said.
Chikadza added that when a country carries a high level of debt, several adverse consequences can arise.
One of the most immediate impacts, she said, is the increase in interest payments, which diverts significant funds away from essential public services, thereby limiting the government’s ability to invest in critical areas such as education, healthcare and infrastructure.
Additionally, she said, the burden of debt servicing can constrain government spending, forcing cuts in vital sectors.
“To manage the growing debt, government may resort to raising taxes, which further impacts citizens by reducing their disposable income and potentially stifling economic growth. These combined effects can hinder the country’s overall development and exacerbate economic challenges for its citizens,” Chikadza said.
On his part, economist and director for Centre for Research and Consultancy Milward Tobias has described the development as an indication of the government’s failure to have a grip on the economy.
“Increasing debt means condemning future generations to unjustified debt repayment obligations, more so because there is little to nothing to show for, in terms of what borrowed money has done
“Increasing debt, especially domestic debt, means continuous crowding out of private investment. Liquidity in lending institutions is swept by government, resulting in limited finance [being] available for the private sector to borrow and invest as well as pushing interest rate upwards. It is counter-productive,” Tobias said.
In May this year, Centre for Social Concern consultant Leslie Mkandawire of Mlomboji and Partners said the country’s domestic debt growth levels were raising concerns.
He lamented that the levels had been growing at an annual average rate of 34.7 percent in the past five years while external debt grew at an average rate of 17 percent.
Weighing in on the issue, Executive Director for Centre for Social Concern Fr. James Ngahy said in the pursuit of justice, poverty alleviation and self-reliance spirit, there can be no room for indifference.
“We cannot turn a blind eye to the struggles of our fellow citizens, nor can we allow the burden of debt to crush the hopes and dreams of future generations.
“It is in moments like these, moments of collective reflection and solidarity, that our humanity shines brightest, illuminating the path forward with a beacon of hope,” Ngahy said.
When asked if the Treasury had any measure to manage the debt, its spokesperson Williams Banda said the government is currently implementing commitment control measures to prevent accumulation of arrears, engaging commercial and bilateral creditors on debt restructuring and enhancing revenue collection.
“More revenue will lessen the burden of borrowing. Debt management regulations were developed to guide the debt operations. Debt management regulations and framework for managing guarantees on lending were developed,” Banda said.
