Malawi's current economic challenges necessitate a blend of immediate response measures and urgent reforms to address longstanding macroeconomic imbalances, including persistent fiscal deficits, balance-of-payments issues, unsustainable debt, and price instability. These factors have significantly impacted the country's economy in recent years, according to the latest World Bank Malawi Economic Monitor (MEM).
The MEM provides a semi-annual analysis of Malawi’s economic and structural development issues. The 19th edition, titled "The Urgency of Reforms: Malawi’s Path to Economic Stability," indicates that Malawi is poised to have the weakest macroeconomic fundamentals among its neighbors, with minimal improvement in living standards in recent years. The World Bank’s economic growth projection for 2024 has been revised downwards to 2.0 percent, which is lower than the 2.6 percent population growth rate. Consequently, GDP growth is expected to decline in per capita terms. Additionally, an El Niño-induced drought earlier this year worsened the near-term growth outlook. Given the grain deficit in the country and limited progress in expanding irrigated maize production, increased grain imports are urgently needed.
The coming months will be critical for Malawi to ensure that planned macroeconomic reforms are implemented and fiscal adjustment measures remain on track. Fiscal consolidation and debt restructuring are essential for restoring fiscal and external sustainability as Malawi continues towards having one of the highest fiscal deficits relative to GDP among Sub-Saharan African countries this year. With rising domestic debt stock, interest payments have become the largest single expenditure item in the national budget, consuming 32 percent of revenue or 6.7 percent of GDP, thereby crowding out productive investment and social spending.
“The Government of Malawi started implementing important fiscal and public financial management reforms, including the agreement on a four-year Extended Credit Facility (ECF)-supported program at the end of 2023 which was a significant milestone,” said Firas Raad, World Bank Country Manager for Malawi. “These efforts represent the start of a reform process, not its conclusion. A sustained reform agenda is required to rebalance the economy towards faster, more inclusive, and more resilient growth.”
This MEM’s Special Topic highlights "Malawi’s Social Protection System Adapts to Mounting Risks," emphasizing the country's vulnerability to climate change and other shocks such as cyclones, floods, and droughts that have had significant social and economic impacts. For every three Malawians who escaped poverty between 2010 and 2019 due to weather-related shocks, four more fell into poverty.
“Malawi’s social protection system has evolved dramatically over two decades from fragmented donor-financed initiatives into coherent programs covering large sections of the population,” stated Robert Chase, World Bank Practice Manager for Social Protection and Jobs for Eastern and Southern Africa Region.
The MEM outlines urgent actions required for rebalancing the economy towards faster growth: restoring macroeconomic stability through fiscal consolidation; bolstering food security; building resilience; protecting vulnerable populations; strengthening agricultural production; and reforming price control systems.