Malawi's economy is facing a deep and protracted crisis characterized by high inflation, declining living standards, and severe food insecurity. Since 2020, GDP growth has fallen from an average of 4.1% to 2.2%, below the population growth rate of 2.6%, leading to declining incomes. External shocks like cyclones and droughts have worsened the situation, compounded by policy failures including a procyclical fiscal policy, overvalued exchange rate, unsustainable borrowing, and trade restrictions.
Key challenges include:
- Food insecurity: Maize production is projected at 2.9 million metric tons for the 2024/25 season, below the national requirement of at least 3.3 to 3.5 million metric tons, indicating widespread food shortages. Climate shocks, underinvestment in climate-resilient agriculture, and foreign exchange shortages exacerbate the issue.
- Economic stagnation: GDP growth is projected at 2.0% for 2025 and 2.4% in 2026, below population growth and hindering poverty reduction efforts.
- Fiscal imbalances: The 2024/25 budget deficit reached 10.5% of GDP due to expenditure overruns and revenue shortfalls. High domestic borrowing financing the deficit has led to rising interest payments, consuming 45.8% of domestic revenue and crowding out public investments and social spending.
- Debt distress: Malawi's external and overall public debt are classified as "in distress," with the 2025/26 budget projecting a deficit of 9.2% of GDP, driven by high spending and optimistic macroeconomic assumptions.
- Current account deficit: The 2024 current account deficit reached 22.0% of GDP, driven by declining export competitiveness and persistent fiscal deficits. Official reserves cover less than one month of imports.
Despite these challenges, Malawi has made progress in human capital development, particularly in health outcomes and declining fertility rates. However, rising food insecurity and teenage pregnancy rates threaten these gains.
The report emphasizes the need for urgent reforms in three areas:
- Restoring macroeconomic stability: Increasing domestic revenues, reducing wasteful spending, finalizing debt restructuring, and controlling borrowing to limit money supply growth and inflation.
- Supporting investment and export growth: Phasing out the implicit fuel subsidy, implementing mining sector reforms, removing foreign exchange surrender requirements, and reducing trade barriers.
- Building resilience and protecting the poor: Investing in climate-resilient agriculture, increasing the shock-responsiveness of the social protection system, and mitigating food insecurity risks through grain imports.
The outlook faces significant downside risks, including potential budgetary overruns and external shocks, while upside risks include easing trade restrictions and faster-than-expected development of mining projects.
