Malawi needs nearly $1 billion in debt relief from its creditors by 2027 – IMF
Malawi needs nearly $1 billion in debt relief from its creditors by 2027, according to the International Monetary Fund’s announcement on Wednesday.
The country is faced with severe shortages of essential items such as medicine, fuel, and fertilizers, primarily attributed to chronic foreign currency shortages.
The IMF report specifies that Malawi requires $887 million in debt relief from its commercial creditors and an additional $99 million from its bilateral creditors for the period spanning from 2023 to 2027.
Last week, the IMF Executive Board granted approval for a four-year loan of $178 million to Malawi. Securing a commitment from bilateral creditors, particularly China and India, to restructure their share of the external debt, which stood at $4 billion at the close of 2022, was a crucial prerequisite for the IMF board’s endorsement of the loan, Reuters reported.
Malawi has struggled to sustain growth for decades despite large inflows of official development assistance. The past three years have been particularly difficult with stagnating growth and widening macroeconomic imbalances due to unsustainable debt and the effects of multiple shocks, including an outbreak of cholera and cyclone Freddy this year alone.
Malawi’s external debt is unsustainable, and debt service needs are eroding limited fiscal space. In response to economic challenges, Malawi, classified as one of the world’s poorest nations, implemented significant measures.
Earlier this month, the country devalued its currency by 30% and raised fuel and electricity prices. On Monday, the government revised its growth forecast for the year, lowering it from 1.5% to 2.7%.
As of the close of 2022, Malawi owed its primary commercial creditors, including the African Export-Import Bank (Afreximbank) and the Trade & Development Bank, $495 million and $395 million, respectively.
Malawi owed its main commercial creditors the African Export-Import Bank (Afreximbank) $495 million and Trade & Development Bank $395 million at the end of 2022.
Concerning bilateral creditors, the majority of the debt is attributed to China and India, with $222 million owed to the Export-Import Bank of China and $114 million to Exim India.
While Malawi continues to meet its obligations to bilateral creditors, it is currently in arrears with its commercial creditors, as noted by Mika Saito, the IMF mission chief, earlier in November.
Last week, Malawi’s President Lazarus Chakwera suspended all international travel for himself and public officials in the country to cut costs.
He also ordered a 50% reduction in fuel allowances for ministers, principal secretaries, directors, and senior officers adding that the practice of spending taxpayers’ money on useless activities in the form of allowances should be put to an end.
