The dynamics of public debt in Malawi: A review

Abstract

This study provides an exploratory review of Malawi's government debt, how it has impeded development and suggests potential solutions. The study examines the size, composition, and structure of Malawi's public debt stock from 1970 to 2020 by analysing the sources of government debt, emphasizing the institutional changes and legislative frameworks put in place to support responsible public spending and debt management. The study was aided by the analysis of data on public debt, both domestic and foreign, from a number of organisations, including the World Bank, the International Monetary Fund, and the Government of Malawi. The review discovered three main time periods of debt patterns in Malawi: 1970–2006, 2007–2012, and 2013–2020. One of the challenges faced by Malawi is the higher-than-expected primary deficits, which are primarily covered by expensive domestic debt taken out at higher interest rates. This is because the country's economy and income base have not expanded quickly enough to meet the rising government spending needs, such as those associated with covid-19 and the high cost of public employment. The study suggests that fiscal consolidation be further strengthened to guarantee that government debt remains within sustainable limits and does not crowd out the private sector. This will strengthen the currently in place debt management mechanisms.