Malawi's economy is facing a deep and protracted crisis characterized by high inflation, declining living standards, and widespread food insecurity. Since 2020, GDP growth has plummeted from an average of 4.1% (2011–2019) to 2.2%, below the population growth rate of 2.6%, leading to falling incomes. External shocks like cyclones and droughts have exacerbated these issues, compounded by policy failures including a procyclical fiscal policy, an overvalued exchange rate, unsustainable borrowing, and trade restrictions.
Key challenges include:
- Food insecurity: Maize production has fallen short of domestic needs for two consecutive cropping seasons, with 2024/25 estimates at 2.9 million metric tons, below the required 3.3–3.5 million MT. This, coupled with forex shortages, leaves millions facing acute food insecurity.
- Inflation: Despite a slight decline at the end of 2024, inflation remained above 30% in early 2025 due to high food prices, exchange rate dynamics, and expansive fiscal policy. The strong correlation between money supply growth and inflation highlights the role of fiscal deficits.
- Private sector struggles: Businesses face high costs, input shortages, restrictive trade policies, and limited access to credit, hindering growth and investment.
- Fiscal imbalances: The 2024/25 budget saw a 10.5% GDP deficit, driven by spending overruns and revenue shortfalls. High domestic borrowing has led to soaring interest payments, consuming 45.8% of domestic revenue and crowding out public investment and social spending.
- Debt distress: Malawi's external and overall public debt are classified as "in distress," with the 2025 DSA indicating potential for sustainability only if the external debt restructuring process is successfully completed.
- Current account deficit: The 2024 deficit reached 22.0% of GDP, driven by declining export competitiveness and persistent fiscal deficits. Official reserves cover less than one month of imports, while the RBM has been a net seller of forex.
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 curb inflation.
- Supporting investment and export growth: Phasing out fuel subsidies, implementing mining sector reforms, removing forex surrender requirements, and reducing trade barriers.
- Building resilience and protecting the poor: Investing in climate-resilient agriculture, enhancing social protection systems, and mitigating food insecurity risks.
The outlook faces significant risks, including potential fiscal overruns during the election year, declining foreign aid, and climate-related shocks. However, Malawi's banking sector remains resilient, with strong capital buffers and liquidity, though rising NPLs suggest potential vulnerabilities. The report concludes that decisive actions are needed to prevent further economic deterioration and create a foundation for sustainable growth.
