China’s Debt Cancellation for Malawi – What Next?

Multilateralism is going through a precarious period characterized by the shifting of goals and massive aid reduction by development partners, rough international relations with increased inward foreign policy and uncertainty in the channeling of resources to the Global South. The unpredictability of the aid industry has disturbed planning and implementation of development projects in the Global South because the resource envelope and revenue base keep shrinking. Malawi, a developing country heavily reliant on development aid, has not been spared by this turbulence in the aid sector. A classic example of how unpredictable the development aid sector has become is the Executive Order 14169 issued by President Trump on 20 January 2025 which imposed a 90-day pause on fresh commitments and disbursements of development aid to countries. With such freezing of aid and the phasing out of USAID, it is estimated that Malawi would lose $177 million. The negative ripple effects of the loss of on-budget and off-budget resources in Malawi have manifested in several sectors including health, governance, education and agriculture. A good number of NGOs in Malawi have either closed down or scaled down their activities because of the phasing out of USAID.

Whilst the aid sector has been dominated by frustrating stories of reduced aid in Malawi, a glimmer of hope emerged from China. On the occasion of the 76^th anniversary of the founding of the People’s Republic of China celebrated on 29^th October 2025 in Lilongwe, Chinese Ambassador to Malawi Lu Xu indicated that China has cancelled two of Malawi’s debts that were due in 2024, totaling approximately $20 million, as a measure to ease Malawi’s economic burden and strengthen bilateral relations. The ambassador also indicated that China and Malawi have just concluded a bilateral debt restructuring, extending Malawi’s entire debt repayment period to 2048. Debt cancellation and restructuring of debt will not only take off the pressure to service the debt but also allow the country to reallocate its financial resources towards other sectors such as those regarding people’s livelihood. The presence of China in Malawi for the past 18 years has led to the conclusion of several projects such as the Parliament Building, Bingu International Convention Centre, Bingu Stadium, Malawi University of Science and Technology, and Karonga-Chitipa Road. As China indicates, the bilateral agreement between China and Malawi is based on true friendship, non-interference and win-win principles. China has also cancelled debt for Malawi in the past. For instance, in August 2023, China signed a $5 million partial debt cancellation facility with the Government of Malawi. The contribution of China to Malawi through debt cancellations is partially justified by the common understanding that development is not a privilege. Development is a right that must be enjoyed by every citizen.

The act of friendship by China should be reciprocated by the Malawi Government with the intention and action of putting the resources to good use. This is necessary for the Malawi Government to undertake self-reflection of how such resources have been utilized in the past and what should be the way forward. For the next steps, one of the issues that the Malawi Government ought to do is to pursue strategic development goals indicated in Malawi 2063 with the windfall realized with the recent debt cancellation. If strategic objectives are not pursued, it will be the same familiar script of underdevelopment through aid when holding all factors constant, aid and grants are meant to empower countries and societies. In the general discourse of development aid, quality of aid and aid effectiveness are achieved if there is accountability and transparency in the utilization of resources. Accountability and transparency prevent fungibility of aid. The Malawi Government needs to prove that it is committed to invest the resources realized from debt cancellation in the best interest of Malawians in this China-Malawi bilateral relationship. The Anti-Corruption Bureau is one of the entities that must be engaged and supported in the broad scheme of things to make aid effective.

Malawi is an agro-based economy that is vulnerable to weather and global forces regarding pricing and value addition of raw resources. Through the short-term and long-term trainings that China offers under the Agricultural Technology Assistance Phase IV, Malawi needs to learn from China how China feeds 1.4 billion people on merely 9% of the world’s arable land and 6% of its freshwater. Focusing on transforming the agricultural sector from being a rudimentary to technologically sophisticated sector dominated by high value addition activities will be important as a catalyst for industrialization of the economy. Industrialization opens up employment and saves forex especially when combined with import substitution industrialization strategy. The industrialization drive must be linked to critical sectors such as energy whereby China has also done well especially on new solar technology. China-Malawi also need to work out on ‘aid for trade’ focusing on the agriculture and mining sectors as one of the strategies for Malawi to attain self-reliance and sustainable development.

For the future, it is also important to note that the development aid landscape is marked by the emergence of ‘division of labour’ whereby the traditional donors concentrate on software development (governance for development) whilst the non-traditional donors focus on hardware development (infrastructure for development). Infrastructure for development mantra is also associated with commercial diplomacy from the development financing angle. China’s commercial diplomacy aspect in Malawi may not be dominant because China is not the main creditor of the Malawi Government as it has 5% share of Malawi’s total debts. However, as much as the debt share for China is small, it is imperative that Malawi should understand the rules of engagement and terms of conditions for any grants, loans and lines of credit so that any transaction should aim at achieving an inclusive win-win situation. Development financing agreements need to reflect true friendship and loyalty of two great nations.

Overall, debt cancellation by China is a strong signal for commitment to partner with the Malawi Government in a bid to achieve meaningful societal transformation and development goals indicated in the overarching development policy, Malawi 2063. The Government must use this windfall wisely such that expenditure should be made only in productive strategic and long-term investment projects that will contribute to the creation of wealth for the Malawian society. Thus, the Malawi Government should avoid using the resources realized from China’s debt cancellation for consuming and predatory investments. Strategic and transparent use of the resources by the Malawi Government has the potential of attracting more options of debt cancellation and attract other development partners to unlock their resources.