* The GDP growth forecast for 2025 has been downgraded to 2.0%, from 4.2% at the end of 2024, due to the impact of a weak agricultural season
* Continued foreign exchange shortages is impeding the importation of production inputs — along with the suspension of some bilateral foreign assistance
* The premature end of the International Monetary Fund (IMF) programme may also impact budget support and other external financing
* Urgent reforms needed in three areas of restoring macroeconomic stability; supporting investment and export growth and building resilience and protecting the poor
By Duncan Mlanjira
In its July edition of the Malawi Economic Monitor, under the theme; ‘Navigating Uncertainty’, the World Bank maintains that Malawi’s economy continues to face significant challenges and in order to create the conditions for growth, “there is a need to shift from business as usual”.
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“The GDP growth forecast for 2025 has been downgraded to 2.0%, from 4.2% at the end of 2024, due to the impact of a weak agricultural season, continued foreign exchange shortages [that is] impeding the importation of production inputs — along with the suspension of some bilateral foreign assistance.
“The premature end of the International Monetary Fund (IMF) programme may also impact budget support and other external financing,” says the 21st edition of the report.
Looking ahead, the World Bank projects that “real GDP growth is projected at 2.4% in 2026” — adding with emphasis that “this stagnation impedes efforts to reduce poverty.
“Fiscal and external imbalances continue to deteriorate. The budget deficit is expected to remain high in FY2025/26, driven by election year spending and the need to absorb some critical expenditures previously financed by bilateral support.
“Inflation is expected to remain above 30% due to a weaker agricultural recovery, the imposition of new import bans constraining supply, as well as continued high money supply growth.
Stressed maize in many parts of the country
“If the official exchange rate remains overvalued, it will continue to incentivise imports and discourage export growth, deepening external imbalances.
“As elections approach, macro-fiscal risks are rising. Depleted buffers and persistent fiscal and current account deficits leave Malawi susceptible to external shocks and other crises.
“Continued delays in advancing reforms increases the risks of further deterioration. External conditions are also becoming increasingly less favorable as foreign aid flows continue declining and global policy uncertainty spills over into Malawi.
“Climate-related shocks are also becoming more severe and urgent. Elections create their own fiscal risks as spending and borrowing pressures intensify.
“However, Malawi’s recent history also provides lessons to policymakers on how severe macro-fiscal crises can be overcome.”
The World Bank further points more gloom, saying in the context of growing imbalances and increasing global challenges, it will be critical for the economy to become more resilient”.
“Currently the policy and institutional framework do not effectively support the adjustment of the economy to shocks. A fixed and overvalued exchange rate and highly pro-cyclical fiscal policy means that at the macroeconomic level, imbalances accumulate, and adjustment costs can be large and sudden.
“These are in turn often borne by the most vulnerable. At the household level, there are also numerous structural impediments to resilience that constrain entrepreneurship and the functioning of markets.
“Building more resilience into the economy means shifting towards a growth and development model that is adaptive and commensurate with Malawi’s state capacity and its revenues.
“Achieving this will require the government to focus its efforts on the most critical issues, where the public sector is best suited to lead.
“The outlook is subject to significant downside risks, including potential budgetary overruns, especially in the context of election spending pressures, that could further entrench macroeconomic instability.
“While direct and indirect effects of recent trade conflicts have caused a downward shift in growth projections, continued uncertainty and weaker-than-expected global demand may further adversely affect Malawi’s growth prospects.
“Climate-related disasters and failure to address external imbalances may further perpetuate input shortages. Upside risks include the easing of trade restrictions, faster-than-expected development of mining mega-projects, and the rapid conclusion of debt-restructuring negotiations with commercial external creditors.”
The report further says key policy priorities include macroeconomic stability, increasing investment and exports, and resilience to shocks.
The World Bank indicates that the 21st edition of the Malawi Economic Monitor “argues for the importance of taking decisive actions to prevent a further deterioration of the economy — as Malawians navigate both global and domestic uncertainty”.
“Malawi’s economy is facing increasing pressure from rising fiscal and external imbalances, shifting global trade and aid dynamics, and the upcoming general elections.
“When the new ‘homegrown strategy’ is announced, it is important that a focus on stabilisation is central — along with a coherent and consistent macroeconomic framework that does not further exacerbate fiscal and external imbalances.”
The World Bank points out that there are “some bright spots in the economy that can drive growth over the medium term — especially through mega-projects in the energy and mining sectors”.
“Critical decisions will need to be made in the coming months to ensure that these projects continue to advance and that the country can make the most of these opportunities.”
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Thus the World Bank maintains that “there is a need to shift from business as usual urges in order to create the conditions for growth” by offering advice for urgent reforms in three areas of:
i) Restoring macroeconomic stability: Increasing domestic revenues through reforms to increase the progressivity of the tax system and the efficiency of tax administration, reducing wasteful spending, finalising debt restructuring & controlling borrowing, and reducing inflation by limiting money supply growth;
ii) Supporting investment and export growth: Phasing out the implicit fuel subsidy, moving forward with the implementation of key mining sector reforms, phasing out foreign exchange surrender requirements and removing unnecessary trade barriers;
iii) Building resilience and protecting the poor: Addressing the growing risks from climate change by investing in climate-resilient agriculture, increasing the shock-responsiveness and sustain- ability of the social protection system and mitigating food insecurity risks by importing grain for the coming lean season.
