Malawi’s Treasury has started rejecting large Treasury bill bids. It began in January and continued in February 2026. The government says it wants to push interest rates down. It also wants banks to lend less to the government and more to the private sector.
For years, the state took most bids. It used the money to cover recurring fiscal gaps. That made T-bills a reliable, low-risk business for banks.
Now the Treasury is turning away cash. Officials call it “auction discipline”. The Reserve Bank of Malawi (RBM) acts as the fiscal agent. Finance Minister Joseph Mwanamvekha leads the shift.
Auction data from early January to late February show unusually high rejection rates. From Jan. 6 to late February 2026, the Treasury rejected more than K540 billion in bids.
In the week ending Feb. 20, total applications reached K245.27 billion. The government raised K113.48 billion. It rejected about 46% of bids. In earlier January auctions, the Treasury sometimes issued no allotment at all.
The Treasury has focused the toughest decisions on 364-day bills. In the Feb. 20 auction, bidders offered K118.25 billion for one-year paper at 18%, down from 26% the week before. The government still issued “no allotment”.
Malawi’s public debt has risen sharply since 2020. Economists and officials link that to persistent deficits, pandemic shocks, and the local-currency cost of external debt after two devaluations: 25% in May 2022 and 44% in November 2023.
The debt mix has also shifted. Domestic borrowing now accounts for about K14.56 trillion, around 65% of total public debt. In 2023, it was closer to 40%.
Domestic debt costs more than concessional external loans. That difference now dominates the budget. Interest payments in 2025/26 are estimated at K2.27 trillion. That is about 51% of domestic revenue.
Malawi’s interest rate spread remains wide. Analysts estimate it at about 33 percentage points. As of January 2026, average lending rates were around 37.3%. Deposit rates were about 4.3%.
Economists link the pattern to “fiscal dominance”. When government paper offers safe, high returns, banks have less reason to compete for private borrowers or to pay more for deposits.
Edward Leman, an economics lecturer at Chancellor College, says high rates have become built into the system. Credit discourages firms, especially small businesses.
James Chiutsi, president of the Malawi Union of MSMEs, says banks have preferred government securities to SME lending. He says SMEs still lack long grace periods and development-orientated terms, even after reference-rate cuts in early 2026 to 24.70%.
The Treasury has also moved to pull public funds toward the RBM. Documents reviewed in the report show that in late January 2026 the Accountant General, Sungani Mandala, told the Bankers Association of Malawi (BAM) to transfer government revenues from commercial banks into “holding accounts” at the RBM.
Around the same time, Secretary to the Treasury Cliff Chiunda requested details on balances held by state-owned enterprises in commercial banks. He asked for current, savings, and foreign-currency account balances, plus loans and letters of credit.
Analysts describe the move as a way to tighten liquidity. It gives the Treasury a short-term cash buffer while it rejects T-bill bids. But it also removes deposits banks use to fund private lending.
Analysts warn that an aggressive drain could tighten credit further. Some forecasts put 2025 GDP growth at about 1.9%, below population growth.
Mwanamvekha has challenged Malawi’s interest-rate structure in public. In a January 2026 consultation, he asked, “Who would borrow at that rate?”
He has pointed to tougher policy options, including caps or limits on spreads. The basic bet is simple. If the government stops absorbing bank liquidity at high yields, banks will chase private lending more aggressively. That could push borrowing costs down.
“If we reduce borrowing, we will be reducing our debt burden, reducing interest payments and guaranteeing increased private sector credit,” Mwanamvekha said in February.
Malawi’s relationship with the IMF worsened after the approval of a 48-month Extended Credit Facility (ECF) in November 2023 worth $175 million. The programme ended on May 14, 2025, after Malawi failed to complete a review in time, according to IMF documentation cited in the report.
The IMF cited widening deficits in 2024/25 linked to election pressures, weaker revenues, and a rising interest bill. It also cited foreign exchange distortions, including a wide official-parallel rate gap.
Without IMF backing, Malawi has struggled to unlock concessional financing and grants to shore up reserves. Some estimates put reserves as low as 0.3 months of import cover by mid-2025.
The report frames the T-bill rejections as policy and signalling. It describes them as an attempt to show fiscal restraint without a formal IMF programme. It also cites World Bank warnings of high crisis risk if borrowing patterns do not change.
The squeeze shows up in services. UNICEF has warned that debt service outweighs combined allocations to key social sectors in some comparisons and that child-focused programmes remain underfunded.
In the 2025/26 budget, child protection received K1.7 billion. Advocacy analysis cited in the report puts that at about K160 per vulnerable child per year.
The report also notes worsening food insecurity: in 2024, more than a fifth of the population faced severe food insecurity (IPC Phase 3 or above). Poverty projections suggest millions living below $3 a day by late 2025.
For Malawi’s eight commercial banks, the policy threatens a long-standing revenue base. The report names National Bank of Malawi, Standard Bank, and NBS Bank as examples of institutions that have relied on government securities as an anchor.
BAM President Phillip Madinga says banks have reduced reference rates in response to RBM signals. He says high operating costs and regulation still constrain them.
He argues the February 2026 reference rate of 24.70% reflects structural problems, not a sudden drop in borrower risk.
The report also flags a balance-sheet risk. Commercial banks hold roughly a third of domestic debt. A sharp move to extend maturities or cut interest on existing obligations could strain liquidity.
Mwanamvekha says the government is engaging lenders case by case to avoid a shock.
Analysts compare Malawi’s position to Zambia, which defaulted in December 2020 after heavy borrowing. Its restructuring under the G20 Common Framework dragged on for years.
The report says Malawi has not applied to the Common Framework. It links that in part to the role of multilateral development banks, which are not covered in the same way.
The report says Malawi now looks for a “reasonable mix of adjustment and financing”.
In the short term, rejecting costly domestic credit forms part of that adjustment. In the long term, officials and donors point to mining, including rutile and graphite, and projects such as Kasiya, as a possible foreign exchange and revenue base.
The report cites World Bank projections that mining could generate substantial annual revenues in the early 2030s while warning that weak oversight could waste any gains.
The report calls the T-bill rejections a gamble. The Treasury wants lower yields. It also wants banks to shift toward productive lending.
The report questions how long the approach can last. It says RBM holding accounts and SOE balances offer only temporary relief. It says deeper reforms still matter, including expenditure control, fewer leakages, better tax efficiency, and a clearer debt strategy.
The report says the next test will come with the 2026/27 National Budget on Feb. 27, when Mwanamvekha is expected to outline the next phase of the plan to rein in domestic debt.
