The report serves as a clarion call to policymakers to act decisively, or risk further economic decline and suffering for the people of Malawi.The World Bank has launched its latest Malawi Economic Monitor (MEM) report, warning that the country’s fragile economic recovery is being hampered by a lack of macroeconomic reforms and a series of external shocks, writes Winston Mwale.
The report, titled “The Rising Cost of Inaction,” was released in Lilongwe on January 30, 2025, and highlights the pressing need for urgent action to stabilise the economy and unlock its potential for sustainable growth.
Economic Downturn and Agricultural Crisis
The MEM paints a concerning picture of Malawi’s economic performance, noting that the country experienced negative per capita growth in 2024.
Gross domestic product (GDP) is estimated to have grown by a mere 1.8 percent, a downward revision from the 2.0 percent projected in April 2024.This is below the population growth rate of 2.6 percent, marking the third consecutive year of declining GDP per capita.
The situation has been exacerbated by a severe drought, induced by the El Niño phenomenon, which significantly impacted agricultural output.According to the report, crop production fell from 29 million metric tons (MT) in the 2021/22 season to 19 million MT in the 2023/24 season.
The production of cereal grains also dropped by 21 percent compared to the previous season, reaching just 3.8 million MT. Maize output, a critical staple, reached only 2.7 million MT, falling far short of the 3.3-3.5 million MT required for domestic consumption. This has led to a severe food security crisis.
Food Insecurity and Household Distress
The MEM reveals that approximately 5.7 million people, or 28 percent of the population, are expected to face crisis-level food insecurity between October 2024 and March 2025.This is a substantial increase from the 4.4 million people who experienced acute food insecurity in 2023, partly due to challenges around access to inputs and the impact of Cyclone Freddy.
The report highlights that households in southern Malawi have been particularly affected, with many reducing the number of meals consumed daily.In August 2024, four in 10 families reported eating fewer than two meals per day, and three in 10 reported going a full day without eating. This demonstrates a severe deterioration in household welfare.
Fiscal Imbalances and Rising Debt
The report notes that progress towards fiscal consolidation has stalled, with revenue collection falling short of targets. The mid-year budget amendment included limited revenue measures that are unlikely to alter the overall trajectory of the budget balance, while further wage increases are likely to exacerbate fiscal challenges.Revenue was 22.3 percent below the mid-year projection, due to a reduction in grant funding and underperformance in domestic revenue.
Domestic revenue amounted to MWK 1,438.5 billion (6.1 percent of GDP), 8.2 percent below the target of MWK 1,559.0 billion (6.4 percent of GDP).Meanwhile, public debt continues to grow, driven by large primary deficits, exchange-rate pressure, and unrecorded obligations. The public debt stock is projected to reach 85.4 percent of GDP in 2024.
The rising debt stock is a reflection of years of expansionary fiscal policy, exchange-rate pressures, and the realization of contingent liabilities, fiscal risks and arrears.The report notes that high-value legal settlements by the Attorney General’s office, particularly related to pharmaceutical and fertilizer contracts, have been securitized, directly adding to the debt stock.
Trade Imbalance and Inflation
Malawi’s imports continue to exceed its exports, contributing to a widening current account deficit, projected to reach 19 percent of GDP in 2024.The report states that “persistently high fiscal expenditures amplify the demand for foreign goods and services, deepening the trade imbalance.”
The current account deficit narrowed in 2023, but this was primarily due to increased net exports and development partner inflows.The real effective exchange rate (REER) has also appreciated, reducing the competitiveness of Malawian exports.
Inflation remains high despite some moderation, with food, housing, and utility prices driving it.The monetary policy rate has remained unchanged since March 2024, but the real policy rate, measured against headline inflation, has remained negative.This combination of factors places significant pressure on the Malawian economy.
Banking Sector and Digital Payments
The banking sector is described as profitable, with banks reporting high returns on assets (ROA) and equity (ROE).The average ROA for banks in Malawi rose from 5.0 percent in October 2023 to 5.9 percent in October 2024, and banks reported a 52.1 percent average ROE in October 2024.
However, the report notes emerging vulnerabilities, including a preference for safer investments in government securities, high exposure to a few large clients, and the potential impact of multiple simultaneous shocks.Digital payment systems are expanding, with over 14 million people in Malawi using mobile money services.
The country’s major payment systems infrastructure, MITASS, has remained stable and reliable, processing 3.7 million transactions worth MWK 57.1 trillion in 2024 alone.Mining Sector: A Path to GrowthThe MEM includes a special topic focusing on the potential of Malawi’s mining sector, particularly its wealth of energy transition minerals (ETM).
The report notes that the global shift toward renewable energy has created a surge in demand for minerals like graphite, titanium, and rare earth elements, all of which are abundant in Malawi.“Between 2026 and 2040, the mining sector could generate a total of $30 billion in exports, with annual exports reaching $3 billion by 2034, and remain broadly stable over the life of mines,” the report states.
The report recommends that the government move quickly to strengthen the legal, regulatory, and institutional framework of the mining sector, as well as its human resource capacity. It outlines a three-pronged approach:Adopting well-informed policies to enable sustained growth of the mining sector.
Boosting government institutional capacity to ensure effective social and environmental protection.Ensuring an efficient, effective, and transparent system to manage mining revenues.
However, the report cautions that “large expectations for reaping economic benefits from mining often clash with the challenges of the current realities, leading to frustration and disillusionment among the public”.
Medium-Term Outlook and Policy Priorities
The medium-term outlook for Malawi is subject to significant risks, particularly climate-related shocks and a slow pace of macroeconomic adjustment and reform.While GDP growth is projected to exceed 4 percent in 2025, persistent foreign-exchange shortages and election-related spending could hinder growth. The MEM identifies several key policy priorities:
Restoring Macroeconomic Stability: This involves fiscal consolidation, external debt restructuring, controlling domestic borrowing, exchange-rate reforms, and managing inflation.
Boosting Investment and Exports: This includes eliminating fuel subsidies and developing mining revenue management systems.
Building Resilience: This involves reforming agricultural subsidies, implementing disaster risk management, and expanding energy access.The report emphasizes that “the cost of inaction is rising, as continued delays in addressing widening fiscal and current account deficits increase the scale of the eventual adjustment and heighten the risk of further deterioration”.
Official Statements
During the launch event, Firas Raad, World Bank Country Manager for Malawi, stated, “Macroeconomic stability is a foundational pre-condition for Malawi’s economic recovery and longer-term prosperity. Stabilizing public finances, building up foreign exchange reserves, and achieving debt sustainability will create the necessary conditions for attracting private investment and enabling the success of the government’s Agriculture, Tourism, and Mining (ATM) Strategy. Without undertaking serious reform actions now, the pain of the eventual economic adjustment and the risks of further destabilization will only continue to grow”.
Robert Schlotterer, Practice Manager of the World Bank’s Energy and Extractives Global Practice, commented on the mining sector, “These revenues if realized, can expand fiscal space, generate significant foreign exchange, ease debt challenges, and catalyze accelerated economic and social progress. Key reforms, therefore, focused on implementing the ‘grow, protect, and benefit’ approach, are required and should be taken forward vigorously over the coming period”.
The World Bank’s Malawi Economic Monitor underscores the urgent need for decisive action to address the country’s deep-seated economic challenges.
While the mining sector holds significant promise for future growth, the immediate priority must be to implement robust macroeconomic reforms, tackle the current food insecurity crisis, and build resilience to external shocks.
The report serves as a clarion call to policymakers to act decisively, or risk further economic decline and suffering for the people of Malawi.
Source: Africa Brief
