The World Bank has called on Malawi to implement urgent economic reforms to restore macroeconomic stability, attract investment, and protect vulnerable populations amid worsening economic conditions.
In its January 2025 Malawi Economic Monitor (MEM), the Bank has outlined key recommendations to address the country’s financial challenges, including high inflation, rising food insecurity, and slow Gross Domestic Product (GDP) growth.
Malawi’s economy, according to MEM, is struggling with a projected 1.8 percent GDP growth in 2024, marking the third consecutive year of declining per capita income.
It attributes foreign exchange shortages as being responsible for the worsening crisis, hindering businesses from importing essential goods.
Despite the challenges, the World Bank believes that with swift and decisive policy actions, Malawi can improve its economic trajectory.
However, failure to act could lead to deeper fiscal distress, increased poverty, and economic stagnation.
“The cost of inaction is rising. Delays in addressing fiscal and current account deficits will only increase the scale of necessary adjustments and heighten risks to the economy,” the report warns.
The current account deficit is expected to increase, and the government’s debt-service obligations are consuming about 43 percent of domestic revenue.
To tackle these issues, it recommends fiscal consolidation, which includes tightening expenditure controls, improving tax policies, and restructuring external debt to ease public finance pressures.
“Reforms must focus on returning to fiscal consolidation targets in both the current year and FY2025/26, completing debt restructuring, managing domestic borrowing, supporting the accumulation of reserves through exchange-rate reforms, and controlling inflation by limiting money supply growth,” the report states.
The report stresses the need to strengthen foreign exchange reserves by fully implementing exchange-rate reforms and limiting monetary financing of fiscal deficits.
With inflation high due to rising food, housing, and utility costs, these measures are seen as essential for stabilizing the economy.
To foster private investment and economic diversification, the Bank advises phasing out fuel and energy subsidies, creating a transparent mining revenue management system, and eliminating foreign exchange surrender requirements to improve investor confidence.
“Private investment is vital for sustainable growth. The success of the Agriculture, Tourism and Mining (ATM) Strategy will depend on whether the private sector invests and whether public funds are used effectively,” reads the publication.
With food insecurity affecting nearly 5.7 million people, the Bretton woods institute recommends reforms to the Affordable Inputs Programme (AIP) to increase agricultural productivity.
This includes shifting focus toward irrigation and sustainable farming practices. The report also calls for the full implementation of the Disaster Risk Management (DRM) Act and the creation of a disaster response fund to better address climate shocks.
It further recommends completing the Energy Compact to facilitate major investments in power generation and ensure a reliable electricity supply by 2030.
The Mpatamanga Hydropower Storage Project, when finished, is expected to stabilize the power sector, reduce energy shortages, and support industrial growth.
As Malawi approaches the 2025 General Elections, concerns about election-related spending are also growing.
Historical data shows that budget deficits during election years are 74 percent higher than in non-election years, potentially worsening economic vulnerabilities.
To stabilize the economy, the World Bank emphasizes the need for responsible fiscal and monetary policies, improved investment climate, and resilience-building initiatives.
The publication urges policymakers to prioritize structural reforms to unlock growth potential, attract foreign direct investment, and protect the welfare of Malawians.
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