The World Bank has raised the alarm over mounting fiscal and macroeconomic pressures in Malawi, warning that without urgent policy reforms the southern African nation’s fragile recovery could be derailed by rising debt, high deficits and currency strains.
In its latest Malawi Economic Monitor and related public finance reviews, the Washington-based lender highlighted persistent structural imbalances, weak revenue performance and growing public expenditure that risk undermining economic stability and long-term growth prospects.
Malawi’s economy has struggled in recent years with slowing growth, elevated inflation and recurring foreign exchange shortages, leaving policymakers with limited room to manoeuvre. Growth in 2024 remained modest at around 1.7 percent, trailing population expansion, with per capita incomes stagnating and poverty stubbornly high. Real GDP growth was projected to rise only slightly to around 1.9% in 2025 and an estimated 2.6% in 2026, according to a recent World Bank macroeconomic outlook.
Fiscal Deficits and Debt Pressures
The World Bank’s analysis found that Malawi’s fiscal deficit has widened significantly in recent years, reflecting overspending on public programmes, rising debt servicing costs and persistently low revenue mobilisation. Budget shortfalls are being financed through domestic borrowing and central bank support measures that have added to the debt burden. The fiscal gap was projected to widen further in 2025, exacerbated by election-year spending and reductions in external aid.
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Malawi’s public debt, already elevated, remains a major concern. Analysts note that a large share of tax revenue is consumed by interest payments, leaving less available for critical investment in infrastructure, health and education. The World Bank stresses that without a credible plan to restore fiscal discipline, debt service obligations will continue to crowd out productive spending and heighten vulnerability to shocks.
Exchange Rate and Foreign Reserves Challenges
Foreign exchange shortages have been a persistent pressure point, with reserves often falling below levels needed to cover even a month of imports. Distortions between official and parallel market exchange rates have added to economic stress, undermining confidence in the kwacha and increasing the cost of essential imports. World Bank analysts warn that continued forex instability could hamper private sector activity and deepen macroeconomic imbalances.
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Recent fuel price increases, including hikes of nearly 40 percent for petrol and diesel, reflect broader efforts by the government to conserve limited foreign exchange and curb smuggling. But such measures, while necessary for macroeconomic balance, have also sparked concern among households already grappling with high living costs.
Inflation and Cost of Living
Inflation in Malawi has remained elevated, driven by high food prices, exchange rate pressures and monetary expansion linked to persistent fiscal deficits. Although some moderation has been reported towards the end of 2025, prices for basic goods and services continue to erode purchasing power for many Malawians, contributing to public dissatisfaction and social strain.
Economic think-tanks note that sustained fiscal and inflationary pressures are likely to persist unless structural reforms are implemented. These include strengthening tax administration, rationalising public expenditure, and reducing reliance on distortionary subsidies, particularly in energy markets.
Calls for Reform and External Support
The World Bank has urged the Malawi government to pursue a broad package of macroeconomic reforms to stabilise public finances. This includes enhancing domestic revenue mobilisation, controlling the growth of domestic borrowing, finalising external debt restructuring, and improving the efficiency of public financial management. Strengthening social protection systems and climate-resilient agricultural policies are also key priorities to protect the most vulnerable populations.
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Authorities in Lilongwe have engaged with international partners, including the Bank and the International Monetary Fund, to secure support programmes aimed at restoring stability and unlocking economic potential. However, the window for effective action is narrowing as fiscal pressures intensify and external financing becomes more constrained.
Outlook
The World Bank’s warning underscores the delicate balance facing Malawi: policymakers must act decisively to rein in fiscal imbalances and restore macroeconomic stability, or risk deeper stagnation in an economy already challenged by slow growth, high inflation and persistent poverty. Without meaningful reform, large segments of the population may continue to grapple with rising living costs and limited opportunities for sustainable growth.
