The World Bank says restoring the country’s economic stability will require setting realistic fiscal targets, making hard choices, and adhering to them year after year.
The Bank’s Country Manager Firas Raad noted that Malawi stands at a critical inflection point in its efforts to navigate a deep economic crisis and to accelerate overall development progress.
He made the sentiments on Tuesday during the launch of a new report – the Malawi Public Finance Review under the title ‘Restoring Stability, Rebuilding Trust’.
The World Bank boss indicated that the thread that binds the agenda is rebuilding trust which requires transparency in how these choices are made and how resources are used.
Raad also called for a strong oversight by Parliament and accountability institutions; coupled with clear communication with citizens about the benefits and trade‑offs of reform.
“Restoring stability, rebuilding trust is more than a subtitle—it is a commitment to doing things differently. Malawi has a window of opportunity to make real improvements in the state of its public finances.
“With resolve, realism, and partnership, it can set itself on a path towards greater stability, resilience, and inclusive growth. The World Bank stands ready together with other partners to support the Government and the people of Malawi in this development effort.
“It also requires protecting low‑income households from negative impacts—by retaining VAT exemptions on basic consumption goods where justified and expanding targeted cash transfers to vulnerable populations—so that consolidation is both equitable and politically sustainable” he stressed
Whilst noting that progress has been made on the revenue side, he however indicated that remains insufficient.
He described the tax‑to‑GDP ratio at nearly 15 percent as still below the 17 percent target articulated in Malawi’s Domestic Resource Mobilization Strategy.
“The system is fragmented, with excessive exemptions and incentives that narrow the base and weaken fairness and efficiency. Legislative gaps and administrative bottlenecks further limit collections. The result is a fiscal equation that remains out of balance —where rising interest costs and rigid spending compress the investments needed to accelerate growth and reduce poverty.”
Raad was upbeat the Public Finance Review report could offer a comprehensive set of options that can help the Malawi Government to reverse the downward cycle.
Nearly three months after the September 16 General election, he stated that at the heart of the chronic set of challenges, lies the issue of fiscal dominance-a situation where fiscal policies consistently overshadow monetary policy and drive large deficits and debt accumulation, fueling inflationary pressures, undermining macroeconomic stability, and eroding confidence.
“Over the past 15 years, Government spending has almost doubled as a share of the economy—from about 16 percent of GDP in FY2011/12 to over 30 percent in FY2024/25—yet the composition has shifted in ways that constrain development. Rigid expenditures now absorb roughly 80 percent of domestic revenue; interest payments alone consume more than half of domestic revenue, crowding out priority investments.
According to the publication, Malawi’s fiscal deficit remains among the highest in Sub-Saharan Africa, financed largely through debt monetization and costly borrowing; high inflation, and unsustainable debt.
It further indicated that forex shortages persist with the exchange rate premium which exceeds 100 percent, and declining external financing.