One of the two Bretton Woods financial institution, the International Monetary Fund (IMF), has expressed worry about how Malawi is handling her agonising debt situation.
According to the IMF, Malawi’s debt situation which is unresolved is a tad concerning and that it needs immediate attention and a quick fix.
With K2.2 trillion or 33 percent of Malawi’s total external public debt, The World Bank is the country’s largest creditor.
IMF director of the African Department Abebe Aemro Selassie speaking during an African Department April 2024 press briefing said official creditors recently provided financing assurances, but the south-east former British colony, Malawi’s other creditors have not yet done the needful.
Said Selassie: “I think, one of the most pressing impediments that we see in our ability to continue to provide financing. Over the last couple of years, the fund, the World Bank, have provided a lot of financing to the country, but this financing cannot be effective, of course, without debt relief for the country.”
Selassie explained that in the context of the ongoing drought, the debt relief is extremely pressing.
“We hope that there will be progress on that front, so that any resources we provide can go to help the people of Malawi.”
However, Selassie admitted that debt restructuring is an extremely painful exercise not only for the debtor country, but also creditors who risks losses and that almost always, sovereign debt restructuring take a long time.
Malawi will have coughed up to 67 percent of external sovereign debt service to Multilateral Development Banks (MDBs) between 2023 and 2029 according to recent published data.
As at December last year, of Malawi’s total external public debt of K6.62 trillion, K4.4 trillion is owed to multilateral creditors.
This means that only about one third of Malawi’s external public debt stock is under negotiation, with K1.7 trillion owed to commercial creditors mostly to African Export-Import Bank (Afreximbank) and Trade and Development Bank and K742 billion owed to bilateral creditors mostly China and Saudi Arabia.
However, Secretary to the Treasury Betchani Tchereni said there is hope as Malawi is making big and steady progress on her debt restructuring.
Tcheleni emphasised that most of the country’s creditors have plegded debt relief for Malawi.
“At the moment, the teams are working on fine-tuning the revised financial term sheets,” he said.
He added: “We are continuing our discussions with creditors to ensure we bring the restructuring process over the finish line as soon as possible in line with Extended Credit Facility time-frame.”
Tcheleni explained that’ the government is working on the response package to weather shocks the country is experiencing.
So far, Tcheleni said, secured support from development partners that will help with the fiscal needs to deal with the weather shocks, including a $57 million disbursement from World Bank.
The IMF had projected the economy to grow by 3.3 percent in 2024.
According to Selassie, the IMF team is set to visit Malawi soon to do a full assessment of the El Nino impact on the economy to ascertain how the fund can support the country.
Overall, the IMF has expressed concern about the rising public debt in sub-Saharan African countries.
According to the 2018 Regional Economic Outlook survey report, about 40 per cent of low-income countries in the sub-Saharan Africa region “are now assessed as being in debt distress or at high risk of debt distress.”
The Bretton Woods Institutions—the IMF and World Bank—have an important role to play in making globalization work better.
The two institutions were created in 1944 to help restore and sustain the benefits of global integration, by promoting international economic cooperation.
“there is hope as Malawi is making steady progress on her debt restructuring.”
Betchani Tchereni
Secretary to the Treasury
