…World Bank says 2019 high-interest loan worsens debt crisis
By Temwanani Gondwe
The World Bank has identified the high-interest loan taken by the Malawi government in 2019 as a key factor contributing to the country’s deepening debt crisis.
According to the bank, the loan—primarily taken to stabilise foreign currency reserves and ensure a steady supply of fuel but was heavily abused—has significantly strained Malawi’s financial position.
Jakob Engel, the World Bank’s chief economist, emphasised that any new loans must align with the policies and conditions set by the International Monetary Fund (IMF) and the World Bank to prevent further debt escalation.
“The 2019 loan was a major miscalculation. The government at the time prioritised short-term solutions without considering the long-term repercussions on the economy. High-interest loans are never a sustainable option for countries already struggling with debt,” Engel stated.
Dr. Sarah Lungu, a senior economist at the Malawi Economic Policy Institute, attributed the current debt burden to reckless borrowing by the Democratic Progressive Party (DPP) administration.
“The DPP government had a history of borrowing without a clear repayment strategy. The 2019 loan was particularly damaging because it was secured at an interest rate far higher than what Malawi could realistically sustain,” said Lungu.
“This means that today’s government is dealing with a debt trap that was set in motion years ago,” she observed.
She further explained that, due to poor debt management under DPP rule, more than 40 percent of Malawi’s revenue is now being channeled towards debt servicing rather than development projects.
“The current administration is essentially paying for the financial mismanagement of its predecessor. Malawians should understand that the consequences of bad economic decisions do not disappear with a change in leadership,” said Lungu.
Another economic expert, Francis Munthali, said the 2019 loan’s terms were designed to benefit lenders rather than the country.
“The loan was structured in a way that heavily favoured creditors while leaving Malawi exposed to financial vulnerabilities. At the time, experts warned against it, but the DPP government insisted it was necessary,” said Munthali.
“Now we are seeing the devastating effects. The debt burden has weakened the country’s ability to invest in essential services like healthcare, education and infrastructure,” he added.
Meanwhile, Minister of Mining Ken Zikhale Ng’oma has assured Malawians that the government is committed to implementing the report’s recommendations.
“The President is taking these concerns seriously. We are focusing on reducing unnecessary spending and ensuring that future borrowing is done responsibly,” said said Ng’oma.
The report also notes that, despite the country’s economic struggles, commercial banks continue to reap massive profits by lending to the government at high interest rates.