Malawi’s economy is in a deep and protracted crisis marked by elevated inflation, declining living standards, and high rates of food insecurity. Economic growth rates have dropped from an average of 4.1% (2011-2019) to 2.2% since 2020. This economic growth rate is below the population growth rate of 2.6%, resulting in declining incomes for the average Malawian. In 2024, economic output growth further slowed to 1.8%, influenced by an El-Niño-induced drought and continued foreign exchange shortages. Inflation remains elevated, influenced by high food prices, exchange rate dynamics, and monetary expansion fueled by high fiscal deficits. This is according to the 21st Edition of the Malawi Economic Monitor (MEM), titled “Navigating Uncertainty”.
The MEM observes that Malawi’s economy continues to be in a vulnerable position. GDP growth for 2025 has been downgraded to 2.0%, from 4.2% projected at the end of 2024, due to a weaker-than-expected agricultural season, suspension of some bilateral foreign assistance and the continued difficulties faced by the private sector to import critical inputs. The premature end of the IMF program will also likely have negative implications for other external financing. Real GDP growth is projected at 2.4% in 2026 which is still below the population growth rate impeding the efforts to reduce poverty.
Many Malawians continue to face food insecurity, a situation worsened by climatic shocks, insufficient investment in climate-resilient agriculture, and limited foreign exchange, which hampers the ability to import food and agricultural inputs. Since the 2022/23 farming season, staple grain production has consistently fallen short of domestic needs. The farming season crop estimates predict maize production at around 2.9 million metric tons, below the national requirement of at least 3.3 to 3.5 million metric tons. Although this season maize production increased by 5.4% compared to the previous year, it remains 24.7% lower than the average from 2019-23. Very limited foreign exchange reserves result in an inability to import food and agricultural raw materials.
Fiscal imbalances are becoming more pronounced due to expenditure overruns and revenue shortfalls, increasing the need for borrowing and deepening current account imbalances. In the fiscal year (FY) 2024/25, the government deviated from its approved budget, leading to overspending and revenue shortfalls. The 2025/26 budget is poised to maintain a trajectory of high spending, influenced by election year pressures. In 2024, Malawi's current account deficit reached 22.0% of GDP, driven by declining export competitiveness and persist fiscal deficits. Additionally, Malawi’s public debt situation remains challenging, with the restructuring of external commercial debt, initiated in 2022, still unresolved. Against these headwinds, the banking sector exhibits resilience, though credit vulnerabilities and sovereign risks are rising.
As Malawians navigate both global and domestic uncertainty, the 21st edition of the Malawi Economic Monitor argues for the importance of taking urgent and targeted actions to stabilize the economy. This will require urgent reforms in three areas:
- Restoring macroeconomic stability: Increasing domestic revenues through reforms to increase the progressivity of the tax system and the efficiency of tax administration, reducing wasteful spending, finalizing debt restructuring and controlling borrowing, as well as reducing inflation by limiting money supply growth.
- Creating conditions for increased private sector investment and exports where among others requires phasing out the fuel subsidy, implementing reforms to enable the mining sector to support growth, removing foreign exchange surrender requirements and reducing trade barriers.
- Building resilience and protecting the poor: Addressing the growing risks from climate change by investing in climate-resilient agriculture, increasing the shock-responsiveness and sustainability of the social protection system and mitigating food insecurity risks by importing grain for the coming lean season.