An International Monetary Fund (IMF) team, led by Justin Tyson, concluded its 2025 Article IV consultation mission to Malawi on June 3. The team engaged with Malawian authorities and representatives from various sectors to discuss strategies for restoring macroeconomic stability and implementing structural reforms aimed at fostering sustainable growth.
The Malawian economy has faced significant challenges, including a slight decline in real GDP growth to 1.8 percent in 2024 due to droughts affecting agriculture and shortages of foreign exchange and fuel impacting economic activities. Food insecurity affects over 20 percent of the population, an increase from the previous year. Inflation rates have fluctuated, influenced by rising maize prices and increased money growth.
Fiscal policy has been more accommodating than necessary, with the fiscal balance falling short of targets due to underperforming revenue and overspending. This has contributed to inflationary pressures and a widening gap between official and parallel exchange rates. External imbalances have worsened, with a current account deficit expanding to about 22 percent of GDP. Malawi is experiencing external debt distress alongside growing domestic debt.
The IMF projects modest economic recovery contingent on agricultural output and foreign support, expecting GDP growth of 2.4 percent in 2025, potentially rising to 3.4 percent in the medium term. Inflation is expected to average around 29 percent this year but may decrease over time.
To address these issues, returning to sustainable fiscal policies is deemed essential. This includes reducing interest expenses to allow for investment in social programs while enhancing domestic revenue through tax reforms and efficient public financial management practices.
Restoring debt sustainability remains critical, with ongoing efforts needed for restructuring external debts and reducing domestic borrowing costs. The IMF emphasizes the importance of tighter fiscal and monetary policies for disinflationary efforts and easing exchange rate pressures.
The financial sector's stability is highlighted as crucial amid risks associated with government borrowing exposure and foreign liabilities within banks. Encouraging private sector credit expansion could support economic growth.
Structural reforms are recommended to improve investment conditions, diversify the economy, enhance governance measures, and strengthen transparency in public procurement processes.
The IMF mission expressed gratitude towards Malawian authorities for their cooperation during discussions.