Africa-Press – Malawi. Malawi’s debt burden is expected to ease to 83.2 percent of gross domestic product (GDP) in 2025, from 85.4 percent in 2024, World Bank projections show.
If achieved, this will be a second successive drop in the ratio from a record 90.3 percent debt to GDP recorded in 2023.
The projection is contained in its latest macro poverty outlook indicators for Malawi.
Debt-to-GDP ratio is the ratio of a country’s public debt to its GDP.
The projection, while depicting a decline of 2.2 percentage points, highlights that the local economy would continue to sail in unsustainable debt levels as it is 23.2 percentage points above the international recommended 60 percent debt to GDP level.
The higher the debt-to-GDP ratio, the less likely that a country will pay back its debt and the higher its risk of default, which could cause financial panic in domestic and international markets.
Furthermore, the country could be facing a financing crisis.
The outlook further shows that the surge continues a concerning trend that has seen the country’s debt levels rise steadily from 67.2 percent in 2021, through 75.5 percent in 2022, to 90.3 percent in 2023.
The World Bank data also show that Malawi’s fiscal balance will remain under pressure, with a deficit of 9.9 percent of GDP projected for 2025.
Velli NyirongoIn an interview, economist Velli Nyirongo said the World Bank’s projection is overly optimistic, particularly after the record high of 90.3 percent in 2023.
However, he was quick to say a closer examination of Malawi’s historical debt trends around election years raises questions about the likelihood of achieving this target.
He said in the three out of the four recent election cycles, the debt-to-GDP ratio increased in the election year compared to the preceding year.
“For example, from 1993 to 1994, the ratio rose from 6.86 percent to 10.67 percent, while between 2013 and 2014, it surged dramatically from 24.91 percent to 66 percent. Even during the 2018 to 2019 election cycle, the ratio increased slightly from 41.7 percent to 44.68 percent. The exception was the 2003 to 2004 period, where the ratio fell significantly from 119.7 percent to 24.8 percent, likely due to international debt relief programmes or significant economic policy changes,” Nyirongo said.
“2025 is an election year, the projected decline in the debt-to-GDP ratio might be difficult to achieve without significant fiscal discipline and strategic economic management. The projection assumes that the fiscal environment remains stable, yet the pressures associated with electoral spending could undermine these efforts,” he added.
However, Minister of Finance Simplex Chithyola Banda has maintained that the Treasury was doing its best to check the country’s debt level.
During presentation of the 2024-25 budget review meeting, he indicated that the total provision for interest payments on debt had been maintained at K1.46 trillion as approved, signalling the government’s commitment to containing borrowing.
Chithyola Banda told Parliament that in order to contain debt to sustainable levels in the short to medium terms, the government would enhance efforts to mobilise domestic resources to finance the budget.
He further said significant progress had been made on debt restructuring as official agreements on the specific restructuring terms had already been reached with some of the country’s major bilateral creditors, including China.
“This will reduce the need for borrowing to fill the budget financing gap. In addition, the government will ensure thorough implementation of the Debt Management Strategy, which will minimise cost and risk of public debt.
“Discussions with the remaining bilateral creditors, including India, Kuwait Fund and Saudi Fund for Development, are being fast-tracked with the objective of reaching the necessary debt treatment in line with the IMF programme requirements.
“Negotiations in good faith are ongoing with the African Export-Import Bank (Afrexim Bank) and the Trade and Development Bank. Both institutions expressed willingness to support our endeavours to restore debt sustainability and our teams are converging towards a mutually agreeable solution,” Chithyola Banda said.
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