Africa-Press – Malawi. As Malawi struggles under a public debt estimated at about K21.6 trillion, the African Development Bank (AfDB), World Bank and United Nations (UN) have outlined eight short-and medium-term measures they say could help the country regain debt sustainability.
T h e proposals come amid a sharp deterioration in Malawi’s debt position, with the risk of debt distress rising from moderate in 2020 to high in 2021, before slipping into actual distress in 2022 following external d e b t restructuring.
In a joint report titled ‘No Time to Waste: Policy Priorities for Malawi’s Recovery’, the AfDB, World Bank and UN note that while tax revenue has improved from an average of 12 percent of GDP to over 14 percent, government spending has grown faster, climbing from about 17 percent of GDP in 2015 to over 30 percent by 2025.
Actual spending has consistently exceeded approved and revised budgets, leaving Malawi with one of the largest fiscal deficits in Africa, averaging around 10 percent of GDP over the past five years.
Following the installation of a new administration after the September 16 general elections, the three institutions recommend swift action.
Within three months, they urge the government to tighten expenditure controls and roll out tax reforms to boost revenue mobilisation.
“The government should introduce immediate measures to control public spending in the mid-year budget, including a hiring freeze for non-essential positions and limits on both domestic and international travel.
“Policymakers should abolish discretionary value-added tax (VAT) exemptions on non-food items and of any new tax incentives,” the joint policy notes read.
They also call for an update to Malawi’s debt management framework, arguing that the 2022 Medium- Term Debt Strategy no longer reflects the growing domestic debt burden.
“The government may also consider contracting a specialised firm to provide debt advisory support,” they say.
The three bodies urge authorities to resume negotiations with external commercial creditors, restrict new external borrowing to concessional financing and develop a strategy to lower domestic interest costs.
“These measures will open fiscal space for growth-oriented investments and help reduce the debt-to- GDP ratio over time,” they say.
They advise Capital Hill to review debt-management practices and implement targeted reforms to strengthen oversight and accountability.
Over the medium term, within the first 18 months, the institutions recommend cutting the domestic interest bill.
They further posit that closer engagement with domestic creditors could ease interest costs and free resources for priority investments that support long-term growth.
“[The government should] contain wage growth for higher-grade positions, reduce travel and allowance expenses, adopt e-procurement systems, cancel underperforming projects and limit new project approvals and strengthen the budgeting process to align actual spending with approved budgets.
“The authorities may consider reducing the number of state-owned enterprises (SOEs), enhance monitoring to prevent contingent liabilities, ensure commercial SOEs adopt cost-reflective tariffs and strictly adhere to established guidelines for government guarantees and on-lending,” they say.
As of end June 2025, total public and publicly guaranteed debt was K21.6 trillion, with domestic debt at K13.2 trillion and external debt at K8.4 trillion.
In its Economic and Fiscal Policy Statement 2026, the Ministry of Finance says the rapid increase in public debt results from borrowing to finance the primary deficit.
Capital Hill notes that reducing the primary deficit is the most effective way to lower debt servicing costs.
“Government’s debt policy goal will continue to focus on developing strategies that will ensure attaining sustainable debt levels and efficient debt portfolio management.
“Efforts to improve the development of domestic and external debt markets specifically for government debt securities will be enhanced,” the statement reads.
It adds that government will continue debt restructuring and pursue lower-cost financing options such as concessional loans or grants.
“These initiatives are designed to ease the debt burden and minimise the duration of economic impact from reduced investment.
“The strategy will be strengthened by sticking to the annual borrowing plan and ensuring debt levels remain within strategic targets,” it says.
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