Malawi’s public debt has surged by K800 billion to K22.4 trillion in September 2025, up from K21.6 trillion in June, according to the Ministry of Finance’s latest figures.
The updated statistics were presented in Lilongwe on Friday during the 2026-27 Pre-Budget Consultation Meeting hosted by Finance Minister Joseph Mwanamvekha.
Director of Economic Affairs Elsie Salima said the elevated debt levels were placing significant pressure on the national budget, driven largely by interest payments of K2.27 trillion in the 2025-26 fiscal year.
“When the Honourable Minister mentioned K21.6 trillion during the mid-year budget presentation, the September figures had not been computed. Domestic debt now accounts for 65 percent of the total public debt stock,” Salima said.
- Advertisement -
She added that, with K2.27 trillion in interest payments alone, domestic revenues are almost exhausted once wages and salaries are factored in.
- Advertisement -
Reserve Bank of Malawi Director of Economic Policy and Research Mark Lungu attributed the rising debt to economic shocks that have affected the economy in recent years.
He noted that while no new external borrowing has occurred since 2021, the Kwacha value of external debt has increased due to exchange rate adjustments.
“Every time we review our exchange rate position, it affects our external debt in Kwacha terms. Debt levels have risen not from new borrowing but from revaluation due to exchange rate movements,” Lungu said.
He said domestic debt had also increased as the government responded to repeated disasters, including cyclones, El Niño and food shortages.
- Advertisement -
Mwanamvekha said containing rising public debt would require tough policy decisions, noting that deficit budgets financed through borrowing must end through strengthened domestic revenue mobilisation.
“The government intends to re-profile its domestic debt obligations as part of a broader debt management strategy. Ongoing analysis is identifying options that will provide fiscal relief while safeguarding financial sector stability and supporting economic growth,” he said.
He added that the government was auditing promissory notes issued through out-of-court settlements to verify their authenticity.
Last month, the African Development Bank, World Bank and United Nations outlined eight measures to help Malawi regain debt sustainability.
Their joint report, titled ‘No Time to Waste: Policy Priorities for Malawi’s Recovery’, noted that while tax revenue had improved from 12 percent to over 14 percent of gross domestic product (GDP), government spending had expanded faster, rising from 17 percent of GDP in 2015 to over 30 percent by 2025.
Actual spending has consistently exceeded budgets, leaving Malawi with one of Africa’s largest fiscal deficits, averaging 10 percent of GDP over five years.
The institutions said weak commitment controls and inconsistent public financial management have contributed to payment arrears, with interest costs projected to reach 8 percent of GDP.
Following the September 16, 2025 Presidential, Parliamentary and Local Government Elections, the institutions urged immediate action within three months, including tightening expenditure controls and rolling out tax reforms.
They recommended introducing spending controls in the mid-year budget, including hiring freezes for non-essential positions and imposing limits on domestic and international travel.
“Policymakers should abolish discretionary VAT exemptions on non-food items and pause new tax incentives,” the policy notes indicated.
The institutions called for updating Malawi’s 2022 Medium-Term Debt Strategy to reflect the growing domestic debt burden and aligning annual borrowing plans with the Public Finance Management Act of 2022.
They urged the authorities to resume negotiations with external commercial creditors, restrict new external borrowing to concessional financing, and develop strategies to lower the domestic interest bill.
“[The] government should refrain from contracting new commercial external debt. These measures will open fiscal space for growth-oriented investments and reduce the debt-to-GDP ratio,” they said.
The institutions recommended conducting a Debt Management Performance Assessment to evaluate current systems against international best practices.
Over the medium term—within 18 months—they advised closer engagement with domestic creditors to ease interest costs and free up resources for priority investments.
Recommended measures include automating wage and pension management, freezing net hiring for non-essential roles, containing wage growth, reducing travel expenses, adopting e-procurement systems, cancelling underperforming projects and strengthening budgeting processes.
They also suggested reducing State-owned enterprises, ensuring commercial SOEs adopt cost-reflective tariffs and strictly adhering to guidelines for government guarantees.
