Malawi’s Economy tilting towards right direction Treasury reduce borrowing by 85%

By Malawi Exclusive

The Treasury sharply pulled back on borrowing last month, taking far less from the market in a move analysts say signals a deliberate shift in fiscal strategy.

In July, government raised roughly K144.6 billion through Treasury bills. That’s down 85.7% from the K880.4 billion it borrowed in June, according to the latest T-bill auction results.

Out of K238.2 billion in bids submitted by banks and other investors, Treasury accepted only about 60%, capping July’s uptake at K144.6 billion.

Dr Ben Dzolowere, an economics expert, said on Tuesday the lower acceptance rate shows government is being selective and does not want the market to fund its entire financing gap.

But he warned the drop in overall bids could mean two things: banks are finding the offered rates less appealing, or the market is testing how far Treasury will push yields down.

“Sustained weak demand is a risk because government still relies heavily on short-term debt that keeps maturing and needs to be rolled over,” Dr Dzolowere said. “Rejecting expensive bids makes sense, but if you reject too hard, auctions can stall and refinancing gets disrupted.”

Christopher Mbukwa, an economics lecturer at Mzuzu University, noted that the July decline might reflect tighter spending controls, though it’s too early to call it a trend.

“We’ll need data through at least mid-year to be sure,” Mbukwa said. “For now, the priority should be sticking to expenditure controls and narrowing the fiscal deficit by mid-year. That would ease pressure on the private sector’s access to credit and help contain interest costs.”

Market analyst Bond Mtembezeka, who is also Country Manager for Business Partners International, said a consistent policy of cutting domestic borrowing could boost confidence among investors who want predictable policy direction.

“From the start, government made it clear it wants to rein in public debt, especially domestic debt,” Mtembezeka said. “This looks like follow-through on that commitment.” He added that authorities are also in talks with both local and foreign creditors on public debt restructuring.

Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha said the rejections are intentional.

“We are rejecting T-bill bids and we will keep doing so,” Mwanamvekha said. “The goal is to push interest rates lower, cut domestic borrowing, and free up banks to lend more to the private sector.”

Reserve Bank of Malawi spokesperson Boston Maliketi Banda explained the rationale against the backdrop of high debt. Domestic debt now stands at about K14 trillion, which is 65% of total public debt estimated at K24 trillion.

“The Government of Malawi has signaled a shift toward fiscal consolidation and debt sustainability,” Banda said. “With domestic debt already elevated, borrowing more at high yields would just increase debt service costs and put more pressure on the budget.”

The strategy appears to be working on rates. T-bill yields have eased from highs of 24% in 2025 for the 365-day paper to around 16% now, partly because government is borrowing less.

Looking ahead, the 2026/27 National Budget covering the period to March 31 2027 projects total expenditure at K10.9 trillion. Of that, K2.79 trillion is earmarked for public debt interest payments. The budget deficit is forecast at K2.85 trillion, equivalent to 9% of GDP.