China Eximbank provides RMB 155.4 million government concessional loan for Phase I of Malawi National Fibre Backbone Project

Project narrative

On November 15, 2016, China Eximbank and the Government of Malawi signed an RMB 160 million framework agreement for the provision of a concessional loan to support Phase I of the Malawi National Fibre Backbone Project (or the Backbone Fibre Project). China Eximbank and the Government of Malawi subsequently signed an RMB 155,432,330.40 government concessional loan (GCL) agreement for Phase I of the Malawi National Fibre Backbone Project. The GCL carried the following borrowing terms: a 20 year maturity (final maturity date: September 21, 2036), a 6.25 year grace period (first repayment date: March 21, 2022), and a 2% interest rate. Malawi's Parliament then ratified the loan agreement on December 6, 2016 through Bill No. 31 of 2016 [Export and Import Bank of China (National Fibre Backbone Project) Loan (Authorisation)]. The loan's principal amount outstanding was RMB 155,432,330.40 as of June 2023. As of 2022, the borrower expected to make principal repayments each year worth RMB 10,362,155.36 until 2036. The fiber optic backbone will be deployed using Electricity Supply Corporation of Malawi (ESCOM) power transmission towers. The project is expected to lay 1,220 km of fiber optic cables from the northern border district of Chitipa to Nsanje in the south, through Lilongwe, Blantyre and Zomba. The project will connect 24 districts (out of the country's total 28 districts) with drop points at the Capital Hill in Lilongwe, Blantyre Government Office Complex and Zomba Government's Offices at the District Commissioner's Office. The project will also involve the installing communication equipment to enable internet connectivity and help the government integrate and optimize its Integrated Financial Management and Information System (IFMIS), Human Resource Management Information System (HRMIS), and the Immigration and National Registration and Identification System. The ultimate objective of the project is to connect all major sectors of the economy and government agencies in the country to a high speed optical fiber based network. Once the national network is completed, high-speed internet will be directed mostly to the Capital Hill in Lilongwe, to the government offices in Blantyre and to those in Zomba. The total fiber optic cable network will cover 4,000 km, 1,220 km of which are part of this project. The remaining 2,780 km is part of ESCOM's current network. Huawei was responsible for implementing the project in collaboration with ESCOM. The project was originally expected to reach completion on June 30, 2022. The Government of Malawi announced that the project had reached completion on February 2, 2018. There are some indications that the China Eximbank loan for Phase I of the Malawi National Fibre Backbone Project has financially underperformed vis-a-vis the original expectations of the lender. In 2021, Malawi's Minister of Finance announced that ‘in 2020/21 FY, Government [of Malawi] requested temporary debt service suspension from bilateral creditors. This is in line with the Extended Debt Service Suspension Initiative (DSSI). The key feature of the Extended DSSI is that the repayment period of the principal and interest payments falling due between 1st January 2021 to 30th June 2021 will be made in five years with one-year grace period. This entails that in 2021/22 FY, the suspended debt service will be within the grace period.’ Then, in November 2022, the World Bank and the IMF judged the Government of Malawi’s external debt and overall public debt to be ‘in distress’—a downgrade from the previous World Bank-IMF Debt Sustainability Analysis (DSA). In July 2023 correspondence with AidData’s Executive Director, the Government of Malawi revealed that it was in negotiations with China Eximbank about rescheduling all of their loans with amounts outstanding. The Government of Malawi proposed principal payments worth RMB 61 million and interest payments worth RMB 26 million in 2023, interest payments worth RMB 26 million and principal payment deferrals in 2024 and 2025, RMB 50 million in principal and interest payments in 2026, RMB 90 million in principal and interest payments in 2027, RMB 89 million in principal and interest payments in 2028, RMB 88 million in principal and interest payments in 2029, RMB 87 million in principal and interest payments in 2030, RMB 86 million in principal and interest payments in 2031, and RMB 85 million in principal and interest payments in 2032. China Eximbank proposed principal payments worth RMB 61 million and interest payments worth RMB 26 million in 2023, interest payments worth RMB 26 million and principal payment deferrals in 2024 and 2025, RMB 148 million in principal and interest payments in 2026, RMB 299 million in principal and interest payments in 2027, RMB 294 million in principal and interest payments in 2028, RMB 228 million in principal and interest payments in 2029, RMB 121 million in principal and interest payments in 2030, RMB 101 million in principal and interest payments in 2031, and RMB 82 million in principal and interest payments in 2032. As of July 2023, a debt rescheduling deal had not yet been reached by the parties.