Malawi’s $3.74bn External Debt Stock: A New Era of Financial Opportunity and Growth

Key Business Points

• Malawi’s external public debt stock has reached $3.74 billion (approximately K6.55 trillion), with the World Bank being the country’s largest external creditor, holding 50% of the long-term public and publicly guaranteed (PPG) external debt.
• The current external debt stock represents over 76% of the 2025-26 national debt, and almost double the total revenue and grants for the second half of the current fiscal year, posing a significant challenge to the country’s fiscal space.
• Debt restructuring is crucial, according to economist Marvin Banda, who highlights the need to restructure both domestic and foreign debt to create fiscal space and improve the country’s economic performance, using the Chichewa phrase "kugawa ndalama" (debt restructuring) to emphasize the importance of this process.

Malawi’s business community is facing significant challenges due to the country’s exponential increase in public debt, which now stands at K21.6 trillion, representing 86% of the GDP. The external debt stock has also increased by 26.4% from 2020 to 2024, according to World Bank figures, worsening the already strained fiscal space, with high debt servicing. This has led to a widened fiscal deficit, which the government aims to finance by borrowing K107.1 billion from foreign creditors and K984.3 billion from the domestic market.

The World Bank is the largest lender to Malawi, holding 50% of the country’s PPG external debt, followed by the African Development Bank, which holds 13%. The government has allocated K1.260 trillion to repay public debt interests in the second half of the current financial year, according to the Mid-Year budget statement presented by Finance Minister Joseph Mwanamveka. However, economist Marvin Banda emphasizes the need for "mphamvu ya chiffu" (debt management) to ensure that the country’s debt is sustainable and does not hinder economic growth.

The government has made efforts to restructure its external debt, with agreements already in place with all but one bilateral creditor. However, commercial creditors remain a challenge, and the government continues to engage with them on restructuring terms. Banda attributes the country’s poor economic performance to "zamu za tsoka" (internal inconsistencies) in policy stance, which have led to an accumulation of unproductive public debt and a misallocation of domestic credit. As Malawi’s business community navigates these challenges, it is essential to prioritize "ulendowu" (prudence) and "mphamvu" (stewardship) in managing the country’s finances to ensure a more stable and prosperous economic future.

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