Taming Malawi’s Debt Burden: Strategies for a Prosperous Economic Future

Key Business Points

• Debt management: The African Development Bank, World Bank, and United Nations have proposed eight short-and medium-term measures to help Malawi regain debt sustainability, including tightening expenditure controls and rolling out tax reforms to boost revenue mobilisation.
• Fiscal deficit reduction: The institutions recommend introducing immediate measures to control public spending, such as a hiring freeze and limits on travel, to reduce the fiscal deficit, which has averaged around 10 percent of GDP over the past five years.
• Economic growth-oriented investments: By implementing these measures, the government can open fiscal space for growth-oriented investments, reduce the debt-to-GDP ratio, and support long-term growth, ultimately benefiting Malawi’s business sector and zinthu zokweza zifupi, or short-term economic activities.

As Malawi struggles with a public debt of approximately K21.6 trillion, the African Development Bank, World Bank, and United Nations have outlined a comprehensive plan to help the country achieve debt sustainability. The proposals, outlined in the joint report ‘No Time to Waste: Policy Priorities for Malawi’s Recovery’, emphasize the need for swift action to address the sharp deterioration in Malawi’s debt position. With the risk of debt distress rising from moderate in 2020 to high in 2021, and eventually slipping into actual distress in 2022, the institutions stress the importance of mkwapatira ulere, or fiscal discipline, to restore the country’s economic stability.

The report highlights that while tax revenue has improved, government spending has grown faster, resulting in one of the largest fiscal deficits in Africa. To address this, the institutions recommend introducing immediate measures to control public spending, such as a hiring freeze and limits on travel. They also suggest abolishing discretionary value-added tax (VAT) exemptions on non-food items and introducing tax reforms to boost revenue mobilisation. These measures will help reduce the fiscal deficit and create nafasi ya kale, or fiscal space, for growth-oriented investments.

Over the medium term, the institutions propose cutting the domestic interest bill, containing wage growth, and reducing travel and allowance expenses. They also recommend adopting e-procurement systems, canceling underperforming projects, and limiting new project approvals to strengthen the budgeting process. By implementing these measures, the government can reduce the debt burden, minimize the duration of economic impact, and support long-term growth, ultimately benefiting Malawi’s business sector.

The Ministry of Finance has acknowledged the need to reduce the primary deficit to lower debt servicing costs. In its Economic and Fiscal Policy Statement 2026, the ministry notes that reducing the primary deficit is the most effective way to lower debt servicing costs. The government plans to continue debt restructuring, pursue lower-cost financing options, and enhance the development of domestic and external debt markets. By sticking to the annual borrowing plan and ensuring debt levels remain within strategic targets, the government can achieve udzu ufike, or sustainable debt levels, and efficient debt portfolio management.

In the context of Malawi’s economy, these proposals offer a nzika, or opportunity, for the government to restore fiscal discipline, reduce the debt burden, and support long-term growth. By implementing these measures, the government can create a more favorable business environment, attract investments, and promote economic growth, ultimately benefiting wamoto, or entrepreneurs, and biashara, or businesses, in Malawi.

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