Ever rising domestic debt has pushed the Malawi Government to engage individual local lenders to restructure the debt amid pressure from its rising interest bill. However, the move is also delicate as restructuring the domestic debt has the potential to weaken the local financial sector. Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha confirmed the debt restructuring discussions in an interview on the sidelines of the 2026/27 Pre-budget Consultation Meeting in Mzuzu on Monday.
But the minister and local economists have cautioned that any restructuring of domestic obligations must be handled carefully to avoid destabilising the banking sector and undermining investor confidence. Mwanamvekha said government already initiated debt restructuring discussions with bilateral and multilateral partners, but the fast-growing domestic debt burden has become a double-edged sword for the authorities. He said the rising debt burden has placed severe pressure on the national budget, largely driven by interest payment obligations estimated at K2.27 trillion in the 2025/26 financial year (FY), equivalent to about 51.2 percent of domestic revenues.
Said Mwanamvekha: “We are doing it [discussions of domestic debt restructuring] in a manner that we do not want to disrupt the banking sector or any investor. Otherwise, if you mismanage that situation, I will guarantee you people will not want to invest. “Actually, we are discussing with each investor because we do not want to make a blanket decision, as the level of borrowing varies from investor to investor.
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The amount of money that insurance and pension funds have invested is quite huge compared to the banks. So, it is a case-by-case basis.” Domestic debt currently accounts for nearly 65 percent (about K14.56 trillion) of Malawi’s total public debt (TPD) stock of K22.4 trillion, according to latest Treasury figures. Three years ago in 2023, local borrowing constituted just 40 percent of TPD.
The rise demonstrates how much the composition of Malawi’s debt has shifted in recent years and the extent to which the Malawi Government has become increasingly reliant on the more costly domestic debt market— which includes financial and non-financial players—whose conditions for contracting debt are not as stringentas those demanded by external creditors. Hovering around 90 percent of gross domestic product (GDP), the country’s TPD levels have risen over the past two decades and are creeping back to the Highly Indebted Poor Country (Hipc) initiative completion in 2006 when multilateral and some bilateral creditors under the Paris Club cancelled up to 84 percent ($2.3 billion) of the country’s external debt which before relief was nearly $3 billion. That act of forgiveness cut Malawi’s unsustainable debt from 142 percent of GDP at the end of 2005 to 23 percent by December 2006, only for the country to return to its bad borrowing habits that now put TPD at around 90 percent of the total size of the economy— and rising, driven by huge deficits largely financed through domestic borrowing with short-term maturity periods that attract high interest rates.
The International Monetary Fund (IMF) states that as of end-2024, roughly a third of domestic debt was held by local commercial banks and the domestic non-bank sector that includes pension and insurance funds as well as the Reserve Bank of Malawi (RBM), respectively. The interest bill, owed mostly to residents and has grown to nearly seven percent of GDP in FY2024/25, is projected to exceed eight percent in FY2025/26 and remain elevated over the medium term, according to the IMF in the Malawi Staff Report for the 2025 Article IV Consultation.
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