Malawi’s public debt situation

By Milward Tobias: Malawi’s public debt situation can be traced to the early 1980s, when the government adopted Structural Adjustment Programmes (Saps). The first structural adjustment loan was…

By Milward Tobias: Malawi’s public debt situation can be traced to the early 1980s, when the government adopted Structural Adjustment Programmes (Saps). The first structural adjustment loan was obtained in 1981. Since then, public debt has continued rising and reached an unsustainable level. By 2005, public debt had reached 130 percent of gross domestic product (GDP). External debt accounted for 108 percent while domestic debt accounted for 22 percent. In 2006, Malawi qualified for the Highly Indebted Poor Country (HIPC) initiative, which saw a decline of public debt to 30 percent.

External debt declined from $2.9 billion to $452 million. Domestic debt declined from K73.3 billion to K68.9 billion. While public debt was skewed towards external debt then, it is skewed towards domestic debt now. This shift means that calls for debt cancellation, which often target external debt, would have minimal impact on overall debt burden. The 2026-27 Financial Statement pegs public debt at K24.3 trillion, composed of K16 trillion domestic debt and $4.8 billion external debt. Total debt represents 93.2 percent of GDP as at December 2025.

Domestic debt accounts for 61.3 percent of total public debt. Debt repayment is a major burden, averaging about 25 percent of total expenditure. For example, in the 2024-25 fiscal year, debt repayment was 21.9 percent. It was 27.6 percent in 2025-26 and is 25.4 per in 2026-27. Put differently, the actual amount of resources used in a financial year is less by one quarter of the approved budget. Over 95 percent of debt repayment is on domestic debt. External debt repayment accounted for 5.7 percent in 2024-25 and 2.6 percent in 2025-26.

It is 2.3 percent in 2026-27, respectively. This implies that even if external debt were cancelled, debt repayment would remain a burden. The only benefit from debt cancellation could arise from foreign exchange savings but not real relief on the budget. We discuss four pathways through which debt has risen in the last two decades after HIPC. Pathway 1: Actual borrowing, high interest rate and weak exchange rate – Within the period, some administrations have been reckless. Inability to control expenditure exposed the economy to distress.

This has resulted in weakening the exchange rate, thus influencing the increase in external debt when counted in local currency—even when the borrowed amount is the same. For domestic debt, poor economic management has resulted in high interest rate, thus influencing the increase in domestic debt. Suggestion The remedy for this is fiscal discipline. Pathway 2: National budget deficit: Despite numerous taxes imposed on citizens, the budget remains in huge deficit. The 2026-27 budget has a deficit of K2.85 trillion.