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Malawi’s economy is facing a worsening crisis marked by surging inflation, growing food insecurity, record-breaking fiscal deficits, and stalled reforms — all exacerbated by election-year pressures, the World Bank’s latest Malawi Economic Monitor (MEM) warns.
The July 2025 report paints a grim picture: economic growth has slowed to just 1.8% in 2024, and is projected to rise only slightly to 2.0% in 2025 — still below the population growth rate of 2.6%, meaning most Malawians are getting poorer. “The average Malawian has experienced a consistent drop in income since 2020,” the report states, calling the economic decline “deep and protracted.”
High Food Insecurity and Inflation
One of the most pressing issues is food insecurity. Maize production, the country’s staple crop, remains below national requirements for the third consecutive year. While production rose slightly to 2.9 million metric tons this year, it’s still far short of the 3.3-3.5 million MT needed.
Coupled with exchange rate distortions and forex shortages, Malawi’s ability to import food and fertilizer has been crippled. Millions now face acute hunger.
Inflation, driven by surging food prices and unchecked fiscal deficits, peaked at over 30% earlier this year before slightly easing to 27.7% in May. But high non-food inflation and rapid money supply growth suggest the problem is far from solved.
Exploding Budget Deficit and Debt
Fiscal indiscipline is another red flag. In the 2024/25 fiscal year, Malawi recorded a staggering 10.5% budget deficit — up from the approved 7.0%. Revenues fell short by nearly 2% of GDP, while expenditures overshot the target by 1.6%. Interest payments alone consumed 45.8% of domestic revenue.
With the 2025/26 budget being shaped during an election year, spending pressures are mounting. The government projects another high deficit of 9.2%, but the World Bank warns this may be overly optimistic given weakening donor support, agricultural fragility, and potential political overspending.
Malawi remains in debt distress. The IMF-World Bank debt sustainability analysis confirms the country’s external and public debt are unsustainable without urgent restructuring — a process that has stalled with key creditors like Afreximbank and the Trade and Development Bank.
Private Sector Under Siege
The private sector is suffering under the weight of forex shortages, fuel crises, power cuts, and a punishing borrowing environment. The kwacha continues to lose value on the parallel market, input costs are rising, and restrictive trade policies — including import bans — are stifling business.
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A diplomatic standoff with Tanzania earlier this year, triggered by Malawi’s import restrictions, disrupted cross-border trade and exposed the dangers of erratic trade policies. Small traders, especially women, reported income losses of up to 60%.
Missed Reform Opportunities
An IMF-backed economic reform program launched in 2023 was meant to bring stability — but it collapsed in May 2025 due to lack of progress. Now, the World Bank says stabilization is more urgent than ever.
The MEM outlines three key areas of reform:
Macroeconomic Stability — Finalize debt restructuring, reform tax administration, and control money supply.
Export and Investment Growth — Scrap fuel subsidies, support mining, ease forex rules, and remove trade barriers.
Social and Climate Resilience — Invest in climate-smart agriculture, expand social protection, and import food for the lean season.
Outlook: Bleak Without Bold Action
GDP growth in 2026 is projected at a modest 2.4%, but risks remain high. With declining donor support, worsening weather shocks, and an uncertain political climate ahead of elections, Malawi’s economy is “highly vulnerable,” the World Bank says.
The report concludes with a clear warning: “Malawi cannot afford to continue with business as usual.” Urgent, targeted action is needed — or the crisis will only deepen.
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