Revitalizing Malawi’s Economy: IMF Calls for Bold Fiscal Overhaul to Stimulate Growth

Key Business Points

• Fiscal reforms are crucial for Malawi’s economic stability and recovery, with a focus on reducing debt and controlling spending.
• Revenue mobilisation is key to achieving fiscal stability, with a need to broaden the tax base without worsening the welfare of citizens.
• Debt restructuring is necessary to minimise the risk of a vicious circle of debt and to create fiscal space for investment in infrastructure and social programmes.

The International Monetary Fund (IMF) has cautioned that while the revised 2025/26 National Budget shows progress in mobilising revenue and controlling spending, deeper and medium-term fiscal reforms are necessary to stabilise the economy and support recovery. According to IMF resident representative Nelnan Koumtingue, Malawi’s continued reliance on domestic financing, coupled with large fiscal deficits and rising public debt, pose serious risks to macroeconomic stability. The high inflation rate, currently at 27.9 percent, and low growth spiral are fuelling Malawi’s cost of living crisis, making it essential to restore macroeconomic stability to safeguard the purchasing power of Malawians.

During the Mid-Year Budget Review, the Treasury revised upwards the 2025/26 fiscal plan by K512.6 billion, with a total deficit projected at K3.1 trillion. Economist Edward Chilima notes that reforms are required to minimise the rising public debt, and that strengthening revenue collection while not tightening expenditures will lead the country into a vicious circle. He emphasizes the need for a complete package of enhanced revenues and tight fiscal reforms, including debt restructuring to create fiscal space. As the Chichewa proverb goes, "Kusintha kwamba si kugona" – fixing the problem is not just about treating the symptoms, but addressing the root cause.

Mzuzu University economics lecturer Christopher Mbukwa agrees, stating that reforms should not be mere expenditure controls, but include serious resource generation strategies to broaden the tax base without worsening the welfare of people and curb excessive domestic borrowing. Public spending is rising on account of easy and accessible domestic borrowing, fuelling inflation further and weakening macroeconomic stability. The World Bank data shows that over the past decade, Malawi’s tax-to-gross domestic product (GDP) ratio has increased by more than three percentage points to nearly 15 percent, but remains below the 17 percent target set in the Domestic Revenue Mobilisation Strategy for 2024/25 fiscal year. With total expenditure at 31 percent of GDP, current revenue levels are far from adequate, highlighting the need for urgent fiscal reforms to ensure economic stability and growth. As business owners and entrepreneurs in Malawi, it is essential to kugwira ntchito kwa umoyo – work smart and strategically to navigate the current economic landscape and take advantage of emerging opportunities.

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