Implementation of domestic debt procedures (MW0016)

1. What problem does the commitment aim to address?
Section 72 of the PFMA provides for mandatory publication of a Debt Sustainability Report. The Medium-Term Debt Management Strategy (MTDS) 2022–2026 includes annual plans to monitor debt sustainability. The Issuance Calendar outlines debt market operations, including:
(a) Treasury Bills and Bonds (Section 78 of the PFMA)
(b) Private sector lending
(c) Parliamentary approval of loans and deficit financing

Some State-Owned Enterprises (SOEs) can borrow, but they require Treasury approval.

According to MW2063, Malawi has for a long time relied on development aid and credit to finance its development programs. This notwithstanding, the recent surge in public debt is a result of a reduced resource envelope amid growing spending pressures, largely in response to natural disasters and a lack of fiscal discipline, among other factors. Malawi’s domestic debt burden has risen significantly, leading to fiscal strain and increasing debt servicing burdens. Domestic borrowing often comes with high interest rates compared to external borrowing, which further increases debt servicing costs, making debt management more challenging. A significant proportion of stakeholders view domestic borrowing as not subjected to the necessary transparency and oversight, unlike external borrowing. Thus, the problem of public debt in Malawi broadly centers on a spiraling debt burden and debt sustainability concerns, transparency in debt monitoring, limited domestic revenue streams and the need for rigorous oversight and fiscal discipline measures.

2. What are the causes of the problem?
The root causes of the problem include:
(a) Unsustainable national debt burden: Malawi consistently runs fiscal deficits, meaning government expenditure exceeds revenue. To cover these deficits, the Government resorts to borrowing, with domestic borrowing being the easiest option. Malawi’s debt burden stood at K16.19 trillion, representing 86.4 percent of GDP by February 2025. Out of this, external debt amounted to K7.39 trillion and domestic debt at K8.79 trillion. In the first half of the 2024–2025 fiscal year, Treasury borrowed K1.4 trillion, which is K300 billion above what was budgeted in the period. According to the World Bank, this spiraling debt is driven by large primary deficits in addition to exchange rate pressure and unrecorded obligations. Malawi’s annual budget is formulated by factoring in a substantial deficit that has to be financed from sources outside its tax revenue potential and capacity. This means the government has to find resources to finance these gaps through domestic borrowing using debt instruments such as bonds and treasury bills, which are managed by RBM as the government’s fiscal agent. Thus, although borrowing in itself is not bad, the real problem is the quality of borrowing, which is borrowing for consumption, other than for investment in priority areas. The problem of high debt burden is worsened by the formulation of unrealistic budgets beyond the current revenue collection capacity of the country’s tax body, the MRA.
(b) Lack of transparency in debt reporting: Debt information is managed through the Meridian System, but it is not publicly accessible. Ideally, quarterly debt bulletins should be produced, and although annual debt reports are published, greater accessibility is needed. Furthermore, Malawi lacks a system for publishing details on treasury bills and domestic borrowing entities. There is also limited public participation in monitoring debt and fiscal policy implementation.
(c) Non-compliance with the legal framework governing government borrowing and absence of a specific law on debt management: Public debt in Malawi is categorized into external and domestic debt. The responsibility for contracting public debt lies with the Minister of Finance, and some public entities can also contract debt under delegated authority. For debt contraction, the government evaluates terms, negotiates conditions and upon agreement, submits the proposal to the Minister of Finance through the Secretary to the Treasury. Once approved, both parties sign the agreement. Parliamentary approval is required for government loans but not for debt market instruments, which are crucial for financing government operations. However, Parliament indirectly approves domestic borrowing when it passes the national budget, which includes a deficit that necessitates borrowing. Furthermore, the PFMA has lapses that do not mandate open declarations of domestic borrowing in Parliament. There are no defined procedures for tracking and managing domestic borrowing. Unlike external debt, there is minimal follow-up and disclosure on domestic borrowing utilization. On the other hand, others see no problems with the PFMA, but that implementation remains a key challenge. Sector-specific debt requests from MDAs require technical appraisal before approval. However, the budget process raises questions about whether Parliament’s approval of the National Budget also implies approval of the borrowing plan.
(d) Limited parliamentary oversight capacity and uncoordinated oversight entities: Despite its role, Parliament is not fully engaged in borrowing decisions. The Budget and Finance Committee has raised concerns about insufficient involvement in domestic and external borrowing. In addition, the multiple oversight institutions (e.g. National Assembly, NAO, CSOs) exist but lack coordination and enforcement mechanisms. The Debt Situational Analysis Report, 2024 revealed that the borrowing plan and the MTDS do not often reach Parliament in time, limiting time for parliamentary scrutiny. This leads to parliamentarians making laws and approving loans without fully understanding their impact.
(e) Public Finance Management inefficiencies and corruption: Inefficiencies in public finance management contribute to the accumulation of debt. Some MDAs overspend beyond 100 percent of their budget while others struggle to access even 40 percent of their allocated budget. Corruption further weakens the impact of borrowed funds, as resources may not be used effectively for intended purposes.

Commitment Description

1. What has been done so far to solve the problem?
Malawi is currently implementing the Public Finance Management Strategy (2023–2028) which focuses on enhancing domestic revenue mobilization, aligning budget execution with approved plans, and increasing public access to contract data. To address debt sustainability concerns, the Government has updated and published its MTDS, incorporating both domestic and external debt considerations. Further, Government has committed to publishing regular reports on outstanding debt figures on official government websites. Government has also engaged with bilateral and commercial debt creditors to negotiate debt restructuring terms consistent with the Extended Credit Facility Program, supported by the IMF.

The PFMA was amended in 2022 to address existing gaps in public debt contracting and ensure debt sustainability. Malawi has also extended the coverage of the Integrated Financial Management Information System (IFMIS) to include all revenue, domestic debt issuance receipts and debt servicing payments. This digitalization aims to strengthen cash management, citizen participation, improve transparency and ensure compliance with the amended PFMA.

2. What solution are you proposing?
The Government commits to:
(a) Enforce compliance with the PFMA.
(b) Establish clear mechanisms for managing domestic debt, create a Debt Consolidation Fund (similar to the fuel levy model) to avoid borrowing to pay off old debts, and ensure that borrowing is directed towards productive investments that stimulate long-term economic growth.
(c) Enforce formulation of realistic national budgets with manageable deficits to reduce reliance on borrowing. Reforms should be implemented to foster economic growth and reduce reliance on borrowing through the prioritization of self-sustaining economic strategies to achieve financial independence.
(d) Strengthen transparency in local government and SOE financial management.
(e) Enhance the role of Parliament as an oversight institution on the contraction and utilization of public loans. Loan approvals should undergo stronger scrutiny with clear guidelines to prevent unnecessary borrowing.

3. What results do we want to achieve by implementing this commitment?
This commitment aims to achieve the following results:
(a) Improved transparency and accountability in domestic debt management.
(b) Institutionalized stronger oversight by Parliament and audit institutions.
(c) Prevented unauthorized or excessive borrowing.
(d) Encouraged borrowing for investment, not consumption.
(e) Enabled citizens and CSOs to track borrowing and hold institutions accountable.
(f) Promoted fiscal sustainability, stronger revenue performance, and reduced debt vulnerabilities.

Commitment Analysis

1. How is this commitment relevant to MW2063?
The commitment is in line with MIP-1 on effective governance systems and institutions. The Government has emphasized sound financial and economic management to strengthen sustainable public debt management. MW2063 also aspires to move towards digitizing all public finance management systems to be more efficient in domestic resource mobilization and curtail corruption.

2. How will the commitment promote transparency?
The commitment mandates public access to borrowing plans, debt servicing data, and domestic debt instruments. Through amendments to the PFMA and the creation of a public debt portal, citizens, Parliament, and CSOs will be able to access comprehensive and real-time information on domestic borrowing.

3. How will the commitment help foster accountability?
By strengthening legal mandates, audit systems, and parliamentary oversight, the commitment ensures that debt contraction is subject to public scrutiny. Debt utilization audits and reporting requirements will deter misuse and promote efficient borrowing practices. It will also create mechanisms for CSOs to monitor and advocate for responsible debt use.

4. How will the commitment improve citizen participation in defining, implementing, and monitoring solutions?
The commitment creates space for civil society and citizens to participate through public reporting, advocacy campaigns, and multi-stakeholder coordination platforms. By making borrowing data accessible and involving stakeholders in fiscal dialogue, the government will improve trust and responsiveness in public financial decision-making.

Commitment Planning

Milestones | Expected Outputs | Expected Completion Date

Strengthen oversight of annual borrowing plans | Clear annual borrowing plans for listed borrowing entities thoroughly scrutinized by Parliament before approval;
Compliance with the legal framework governing government borrowing enforced; Parliamentary oversight capacity on domestic debt enhanced; CSOs’ advocacy initiatives in debt management, fiscal transparency and accountability developed and implemented | December 2028

Increase transparency and accountability on domestic borrowing and utilization | Details on treasury bills and domestic borrowing published; A public portal to track domestic borrowing and utilization developed; Regular monitoring and reporting on debt audits conducted to track loan utilization and repayment; Public scrutiny and civic engagement on government borrowing practices enhanced; Regular public debt reports produced and proactively disclosed to ensure accountability and build trust among stakeholders | December 2028