Economist Chifipa Mhango urges Malawi Government to secure active sovereign debt rating to attract investors, cut borrowing costs

By Watipaso Mzungu

South Africa-based economist Chifipa Mhango says Malawi stands to attract more foreign investment and lower its cost of borrowing if it secures an active sovereign credit rating, which serves as a country’s financial passport.

Welcoming the launch of the Africa Credit Rating Agency (AfCRA), the Don Consultancy Group (DCG) Chief Economist and Executive Director of Economic Research and Strategy said a credible and regularly updated rating is critical for rebuilding Malawi’s international financial credibility, which has been absent since its last Fitch rating of B- expired in 2007.

“A sovereign credit rating is effectively a country’s financial passport. It provides investors, lenders and financial markets with an independent and regularly updated assessment of the country’s ability and willingness to meet its financial obligations. Where that assessment is absent, investors have less independently verified information with which to price sovereign risk,” Mhango said.

He said Africa faces a significant rating gap. Out of 55 countries, only about 32 have an active sovereign rating from at least one of the three major global agencies — Moody’s, S&P Global Ratings and Fitch Ratings — leaving about 23 countries, including Malawi, without active coverage.

Malawi’s case is particularly critical, he noted, because without a current rating, investors considering Malawi today cannot rely on a regularly updated assessment reflecting the country’s current fiscal position, debt dynamics, foreign-exchange position, institutional environment and economic prospects.

“This means that investors considering Malawi today cannot rely on a regularly updated sovereign rating from the major international agencies reflecting the country’s current fiscal position, debt dynamics, foreign-exchange position, institutional environment and economic prospects,” he said.

According to Mhango, this gap hurts Malawi in several ways. Without an active rating, the country remains less visible to international investors, struggles to benchmark and price sovereign risk, and faces higher borrowing costs.

He stressed that the benefits of an active rating go far beyond government borrowing and extend to the domestic private sector.

“An active sovereign rating can improve a country’s visibility to international investors, provide a benchmark for pricing sovereign risk and potentially support access to international financing as economic fundamentals improve. Its importance can also extend to the domestic private sector. Sovereign risk perceptions frequently influence the financing conditions facing domestic banks and companies seeking international capital. Improving sovereign credibility can therefore contribute to a broader improvement in the country’s investment and financing environment,” Mhango said.

He said for Malawi, establishing credible and active sovereign rating coverage should be part of a broader, long-term strategy for rebuilding financial credibility anchored on fiscal discipline, debt sustainability, transparency and institutional strengthening.

But Mhango cautioned that Malawi should not pursue a rating for the sake of a good grade.

“For Malawi, the objective should not be to seek a favourable rating. It should be to obtain a credible rating. A difficult rating that accurately identifies weaknesses is ultimately more valuable than having no current benchmark at all, because it tells policymakers and investors where the risks are and provides a measurable pathway towards improvement,” he said.

While welcoming AfCRA, Mhango said its success will depend on independence, methodological rigour, transparency and trust from investors, not merely on being African.

“AfCRA will succeed if investors trust its analysis, not simply because it is African. Its ratings must be capable of identifying economic weaknesses just as firmly as they recognize economic strengths. Credibility must come before favourable outcomes,” he said.

He said the real test for AfCRA will be whether its ratings influence actual capital allocation, lending decisions, bond pricing and investment decisions.

“That is when an African credit rating architecture begins to have economic meaning,” Mhango added.

He said Malawi now has an opportunity to treat an active sovereign rating not just as an economic assessment, but as a strategic tool for fiscal credibility and eventual re-engagement with international capital markets.

Addressing the nation last weekend, President Peter Mutharika stated that debt restructuring has become unavoidable because domestic revenues are insufficient to meet the country’s financial obligations, noting that nearly all collected government revenue is currently being absorbed by debt servicing.

Mutharika disclosed that restructuring the heavy debt burden is a necessary step because the country does not generate enough revenue to fund its activities and development programs.

He explained that the situation has reached a point where almost all collected state revenue goes straight to paying off debts, leaving very little room for essential imports or public services.

While acknowledging that Malawi will still need to borrow, he stressed that future loans must be handled wisely and directed strictly toward development projects rather than consumption.