Malawi is among countries in the sub-Saharan African region with high public debt leading to limited fiscal space and increased borrowing costs, a situation the World Bank says would weigh on investment growth.
In its January 2024 Global Economic Prospects Report issued last week, the Bretton Woods’ institution also says tight monetary policies could have a bearing on the growth trajectory.
It, however, says waning inflationary pressures should allow for a gradual easing of interest rates, thereby bolstering private consumption and investment.
According to the World Bank, public-debt-service costs have risen sharply in many sub-Saharan African economies in the recent past.
“This has increased the need for debt reduction, particularly in highly indebted countries,” the World Bank says.
In Malawi for instance, total public debt stock rose by 38 percent from K6.84 trillion, or 63 percent of gross domestic product (GDP), as at the end of March 2022 to K9.4 trillion or 75 percent of GDP in March 2023.
Out of the total public debt stock, external debt was seen at $3.94 billion, or 32 percent of GDP, while K5.36 trillion ($5.22 billion), or 43 percent of GDP, was domestic debt.
The external debt stock, according to the recent Annual Public Debt Report by the Ministry of Finance, consisted of 73 percent Central Government debt and 27 percent central bank debt as at end-March 2023.
But in its report, the World Bank says the high debt burdens and interest rates have narrowed fiscal space and heightened financing needs.
“Despite the projected pickup in growth, increases in per capita incomes will remain inadequate to enable the region’s economies to make significant progress in reducing extreme poverty,” reads the report.
Meanwhile, another recent report by local investment management and advisory firm, Bridgepath Capital Limited, outlines rising public debt among five risks facing the local economy which it says, if not addressed, can affect real GDP growth this year.
In its 2023 Malawi Annual Economic Report issued on Friday, Bridgepath Capital Limited says further delays in debt negotiations can reduce access to trade credit, forex swaps and other short-term loans.
“This may, in turn, worsen foreign exchange shortages and result in difficulties in importing essential commodities (fuel, medicine and food) and servicing debt, which would, in turn, worsen dire macroeconomic conditions, poverty and food insecurity,” the report reads.
In the past months, Malawi has been working towards getting its external debt with different lenders restructured to sustainable levels.
