Malawi’s economy has made progress in achieving macroeconomic stabilization following two years of severe drought and lingering consequences of corruption scandals. Malawi faces a moderate risk of debt distress based on an assessment of public external debt, with heightened vulnerabilities related to domestic debt. Three recommendations are made. Firstly the government should direct resources from debt to capital projects that have ability to payback and also towards productive sectors of the economy, contrary to funding recurrent expenditure. There has been a significant rise in domestic debt, constituting a large share of the total public debt. Hence, the government should formulate and implement prudent domestic debt management strategies to mitigate the effects of rising debt on
the economy. Lastly there is need to strengthen the soundness of fiscal position through promotion of FDI policies and through capacity utilization across all key sectors of the economy.
