Malawi faces a moderate risk of debt distress based on an assessment of public external debt, with heightened vulnerabilities related to domestic debt.1 Malawi’s2 debt situation is somewhat better than indicated in the last DSA3 mostly on account of recent rebasing of GDP. Except for the debt service-to-revenue ratio – which displays a marginal and temporary breach in 2016, baseline external debt burden indicators remain below their indicative thresholds, but stress tests show that a weaker debt outcome is possible under the historical scenario. The projected borrowing path and debt policies remain broadly unchanged since the last DSA.
The DSA was prepared by Pranav Gupta (Economist, IMF) and Richard Record (Senior Economist, World Bank).
Malawi has weak capacity of debt monitoring and the average CPIA score for past three years stands at 3.15.
IMF Country Report No. 15/83, March 2015.
Prior to GDP rebasing in 2014, the public and publicly guaranteed external debt to GDP ratio stood at 44.0 percent in 2013, which now is revised down to 30.8 percent in 2013.
The Kwacha depreciated by around 36 percent from July 2015 to February 2016.
An equivalent to 4.1 percent of GDP of RBM advances was converted into Treasury notes and sold to a regional nonresident bank (PTA bank) in December 2014–January 2015. The PTA debt restructuring loan was considered as external loan despite repayment to be made in local currency on account of the lender (PTA bank) being a nonresident. At the time of contracting, the government sold to PTA three-year maturity Treasury bills, equivalent to US$250 million. The US dollar value of Treasury notes held by PTA declined following the recent steep depreciation of the Kwacha.
Average of current account over last 10 years was around -5.5 percent of GDP, compared to -10.1 percent under the revised classification. For example, under the reclassification, current account for 2011 and 2012 were revised from -5.9 percent and -3.5 percent of GDP to -9.3 and -8.7 percent of GDP respectively.
Domestic financing is expected to increase in 2016 in order to respond to the drought.
Domestic debt is projected to increase from 16.8 percent in 2015 to 18.9 percent in 2016. We assume that as the PTA debt is amortized, the debt is rolled over from foreign to domestic.