‘Malawi’s overreliance on maize as food and economic staple means poor harvests immediately trigger inflation volatility’—RBM Governor

* As inflation remains one of Malawi’s most stubborn economic challenges —the highest in southern African region though it recently declined from 30% to just below 29%

* The country’s GDP growth remains modest, projected at 3.2% in 2024, largely driven by a rain-fed, low-mechanisation agriculture sector

* While the suspension of the ECF has created uncertainty, it also presents an opportunity for Malawi to redefine its economic trajectory

* Malawi must craft and implement homegrown, inclusive, and sustainable economic strategies, driven by national unity, transparency, and citizen accountability

By Duncan Mlanjira

Reserve Bank of Malawi (RBM) Governor, Dr. Mafuta Mwale says of the country’s “over-reliance on maize as a food and economic staple means poor harvests immediately trigger inflation volatility”.

This is contained in the statement on the summary of the 6th All-Inclusive Stakeholders Conference convened by the quasi-religious group, Public Affairs Committee (PAC) on potential triggers of electoral disputes held on May 20-21 at Sunbird Mount Soche in Blantyre — held under the theme; ‘Securing Consensus on Transparent and Accountable Electoral Governance through Dialogue’.

The report quotes Mafuta Mwale as saying “inflation remains one of Malawi’s most stubborn economic challenges and that the highest in southern African region [and that] though it recently declined from 30% to just below 29%, the figure is still the highest in the Southern African region”.

This drop, according to Governor, “is temporary and directly linked to seasonal improvements in food availability, particularly maize — thus country’s overreliance on maize as a food and economic staple means poor harvests immediately trigger inflation volatility”.

PAC’s report says Mafuta Mwale began by acknowledging the significance of the conference as a timely platform to engage citizens on economic issues and his presentation was structured around economic performance indicators, external sector developments, fiscal trends, the debt burden, and proposed solutions to Malawi’s macroeconomic challenges.

Economic Growth and Structural Vulnerabilities

He reported that Malawi’ GDP growth remains modest, projected at 3.2% in 2024, largely driven by a rain-fed, low-mechanisation agriculture sector.

“This structural dependency on climate-sensitive agriculture renders the economy vulnerable to weather shocks. Historical events — including severe droughts, Cyclone Freddy, the CoVID-19 pandemic, and global conflicts such as the war in Ukraine — have repeatedly disrupted supply chains and impacted economic resilience.

Trade and External Sector Challenges

Malawi continues to register a persistent trade deficit, importing between US$3-4 billion annually, while exports hover around US$2 billion. The country heavily depends on imports such as fuel, fertilizer, machinery, and vehicles, while top export — led by tobacco — remain insufficient to offset import costs.

Notably, the rise in fuel consumption (from 29 million to 46 million litres monthly) significantly strains foreign reserves.

Malawi’s gross official reserves — sourced from donor inflows, loans, and export earnings — are declining. Private sector reserves have also stagnated, underscoring structural weaknesses in foreign exchange generation.

Public Debt and Fiscal Sustainability

Malawi’s fiscal position remains under stress as the country consistently operates with a budget deficit, and public debt has soared, with domestic debt now outpacing external borrowing.

“Dr. Mwale warned that due to the way debt is accounted for — in Malawi Kwacha — any devaluation of the currency leads to a passive increase in the debt burden.

“He highlighted that some of Malawi’s debts date back to the 1970s and are still being serviced today. The Governor reiterated that while government does not default on its obligations, debt servicing costs significantly constrain government to effectively deliver the much-needed public services such as health, education and infrastructure,” observes PAC in its report.

Key Economic Challenges

Mafuta Mwale identified the following key issues impacting Malawi’s economic stability:

* Limited Forex Sources: Malawi’s major GDP contributors, like agriculture, are susceptible to weather shocks and generate limited foreign exchange;

* Disinformation and Social Media Speculation: Unverified economic narratives on social media often trigger inflationary expectations and panic economic behaviours;

* Informal Economy: Widespread informal financial activity — including black market forex trading — undermines formal revenue collection and macroeconomic management;

* Diaspora Remittances: Channels like hawala reduce the inflow of diaspora remittances through formal channels, with devaluation further discouraging external contributions.

Proposed Solutions and Reforms

The Governor presented a broad reform strategy centered on production-led growth and homegrown economic models:

* Diversifying Agriculture: Transition from subsistence rain-fed farming to large-scale irrigation through mega farms (e.g. in Nchalo, Karonga and Nkopola);

* Mining Sector Growth: Renewed focus on mining is evidenced by recent signing of three mining agreements. Plans to establish a University of Mining are also underway;

* Debt Restructuring: Ongoing bilateral negotiations aim to extend repayment terms and restructure debt servicing are underway;

* Private Sector Engagement: Commercial banks are encouraged to finance productive sectors and participate in development financing;

* Tailored Monetary Framework: In the absence of a guiding IMF programme, the RBM is developing an independent framework to ensure macroeconomic oversight and accountability.

Extended Credit Facility (ECF) update

On the suspension of the ECF, the Governor reported that “the programme was initially meant to stabilise the economy, but it became misaligned with evolving economic shocks”.

“Some of the assumptions — such as automatic fuel price adjustments — were unrealistic and donor support did not materialise as expected. The suspension of the ECF is temporary and mutually agreed upon with the IMF, allowing time for both parties to craft a more responsive and context-specific economic support framework.

“Dr. Mwale emphasised that Malawi must begin to take ownership of its economic policies, stating, ‘Let Malawians be their own IMF’.”

Mafuta Mwale was accompanied by the Minister of Finance, Simplex Chithyola Banda, who is reported to have echoed the RBM Governor’s sentiments, calling for a national mindset shift anchored in Ubuntu — “one Malawi, one people, one nation”.

“He viewed the conference as a potential turning point in Malawi’s economic recovery. He explained that the suspension of the ECF was a necessary step, taken through a delegation he led to the IMF, in order to renegotiate more realistic conditions post-2025 elections.

“Despite fulfilling several ECF requirements, some conditions — particularly fuel pricing adjustments — posed social risks and lacked public buy-in.

“Looking ahead, the Minister stressed the need for homegrown solutions and tailor-made economic policies, affirming that Malawi’s economic future depends on the collective efforts of its citizens.”

In their reactions, the wide range of stakeholder delegates that included representatives from political parties, the private sector, civil society, the media, and technical experts, “offered critical reflections on the state of Malawi’s economy, public financial management, and economic governance.

“Several political party delegates raised pressing concerns regarding fiscal accountability and economic governance. A recurring issue was the lack of transparency in the utilisation of public debt, with participants seeking clarity on how borrowed funds have been applied.

“Concerns were also voiced over the devaluation of the Kwacha — noting that in an economy such as that of Malawi, devaluation does not necessarily resolve the economic challenges that are assumed to be dealt with by such policy decision.

“To the contrary, this devaluation tends to have further negative ripple effects thereby exacerbating the cost of living of the ordinary Malawian.”

The PAC report further says other delegates “emphasised the need for structural economic transformation, urging a shift from an agriculture-dominated economy toward a more diversified portfolio including mining and manufacturing”.

“Additionally, the role of the diaspora was highlighted, with calls for greater inclusion in national economic policymaking and a need to address the reported decline in remittances.

“Participants from the private sector and professional associations/think tanks emphasised the importance of technocratic leadership in economic management. There was consensus that interest rates and tax regimes should be managed based on sound economic principles rather than political influence.

“The discussions also stressed the need for a private-sector-led recovery strategy, particularly in agriculture, tourism and mining — sectors viewed as pivotal to revitalising the economy.

“Civil society actors and media representatives expressed strong reservations about the government’s economic policies, particularly around debt management and currency devaluation.

“Calls were made for full public disclosure of the sources and terms of debt, with some delegates questioning the effectiveness of past devaluation strategies.

“Several stakeholders called for accountability at the highest levels of government, underscoring the urgent need to tackle systemic corruption. The unfulfilled promises in the mining sector were cited as an example of how weak governance and corruption continue to undermine economic progress.

“In addition, the enforcement of labour protections, such as the minimum wage, was scrutinised, with some delegates questioning the government’s commitment to upholding basic economic rights.

“The role and continued involvement of international financial institutions, particularly the IMF, was also debated, with divergent views on whether such partnerships enhance or erode Malawi’s economic sovereignty.”

PAC observes that the session on the country’s economic status “served as a sobering reflection of Malawi’s economic situation, which is viewed as being at a cross-road”.

“The presentations and debates reinforced the urgency of transitioning from dependency on foreign aid and weather-sensitive agriculture to a resilient, production-oriented economy.

“While the suspension of the ECF has created uncertainty, it also presents an opportunity for Malawi to redefine its economic trajectory.

“The overarching call was clear — Malawi must craft and implement homegrown, inclusive, and sustainable economic strategies, driven by national unity, transparency, and citizen accountability,” says the PAC.