Financial analyst Sylvester Malumba has warned that any move by Malawi Government to restructure its growing domestic debt must be handled with extreme caution, cautioning that missteps could destabilise banks, pension funds and the wider financial system.
Malumba said most of the government's domestic debt is held by local banks, pension and insurance funds, making aggressive restructuring risky and potentially damaging to economic growth.
"It should be gradual, well-coordinated and supported by broader fiscal and economic reforms to avoid crowding out the private sector and undermining growth," he said, adding that stronger revenue mobilisation would help sustain any restructuring efforts.
His remarks come as government confirmed it has begun case-by-case discussions with local lenders to ease the pressure from rapidly rising domestic debt, which has pushed interest payments to record levels.
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Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha said the discussions are being handled carefully to protect investor confidence and avoid disruption to the banking sector.
"If this is mismanaged, I can guarantee you people will not want to invest," Mwanamvekha said during the 2026/27 Pre-Budget Consultation Meeting in Mzuzu.
According to Treasury figures, domestic debt now accounts for nearly 65 percent of Malawi's total public debt of about K22.4 trillion, up from roughly 40 percent in 2023. The shift reflects increased reliance on expensive local borrowing.
The growing debt burden has sharply increased interest costs. In the 2025/26 financial year, government is expected to spend about K2.27 trillion on interest payments, representing over 51 percent of domestic revenues, leaving limited resources for development and social services.
The International Monetary Fund (IMF) estimates that about one-third of domestic debt is held by commercial banks, pension funds, insurance companies and the Reserve Bank of Malawi, making restructuring particularly sensitive.
IMF resident representative Nelnan Koumtingue has cautioned that poorly managed domestic debt restructuring could disrupt the financial sector, but said timely and transparent reforms backed by strong fiscal discipline could help restore market confidence.
Economics Association of Malawi president Bertha Bangara Chikadza said domestic debt restructuring is politically and economically sensitive because it directly affects local institutions and citizens' savings.
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She urged government to prioritise improved tax administration, reduced revenue leakages and fiscal discipline to limit further borrowing.
Malawi's total public debt is currently estimated at around 90 percent of gross domestic product (GDP), a level economists say is unsustainable. Analysts note that although Malawi benefited from major debt relief in 2006, weak fiscal management has since pushed debt levels back to dangerous levels.
Meanwhile, Mwanamvekha said Malawi has made limited progress on external debt restructuring, reaching an agreement with China covering about $206 million in loans through extended repayment periods and cancellation of about $20 million, while discussions with India continue.
As pressure mounts, experts warn that delaying domestic debt reforms could deepen Malawi's economic challenges, leaving government with fewer options to stabilise the economy while protecting the financial system.
