Minister of Finance and Economic Affairs Simplex Chithyola-Banda has unveiled the K8 trillion 2025/26 National Budget, outlining a strategy aimed at stabilising the economy amid slow GDP growth, high inflation, and rising debt.
But the minister was silent on austerity measures the budget intends to implement to cut down expenditure and stem the rising debt now at over K16 trillion.
Presenting the budget in Parliament yesterday, Chithyola-Banda acknowledged that economic performance in the past financial year was below par, amid a cacophony of macroeconomic challenges including sluggish growth, high inflation and persistent forex shortages.
He said: “The 2025/26 National Budget reaffirms the government’s commitment to production-led growth, fiscal consolidation, and enhanced revenue mobilisation to address economic challenges.”
Economic projections
Exuding a confident tone, the minister told members of Parliament that his ministry expects the economy to rebound to 3.4 percent of gross domestic product, up from 1.8 percent recorded in the previous years against a backdrop of exogenous shocks and persistent high inflation.
Inflation is expected to moderate from 32.3 percent in 2024 to 24 percent in 2025, driven by the central bank’s tight monetary policy and improvements in maize supply.
Revenue Mobilisation
The government has set a domestic revenue target of K4.44 trillion (17.1 percent of GDP), with tax revenue expected to contribute K4.33 trillion while other revenues have been projected at K106.02 billion.
Foreign grants are expected to contribute K1.14 trillion, highlighting Malawi’s continued dependence on external financing.
Expenditure Priorities and Fiscal Pressures
The budget reflects a significant increase in spending, largely driven by debt servicing, public sector wages, and social protection programmes. Of the K8.05 trillion expenditure, K6.04 trillion is allocated to recurrent spending, with development expenditure at K2.01 trillion.
Debt interest payments are projected at K2.17 trillion (8.4 percent of GDP), consuming 49.2 percent of domestic revenue. This represents a sharp increase from K1.46 trillion in the previous fiscal year.
Domestic debt interest accounts for K2.11 trillion, while foreign debt interest is estimated at K61.2 billion.
Said Chithyola-Banda: “The government acknowledges that servicing past debts significantly limits fiscal space for productive investments, reinforcing the need for stringent fiscal discipline and alternative financing mechanisms.”
Wages and salaries are projected to increase to K1.53 trillion, representing 5.9 percent of GDP, including K10 billion for recruitment and K176 billion for general salary adjustments.
Pensions and gratuities are estimated at K170.4 billion, with a continued emphasis on clearing the backlog of unpaid benefits. The government has injected K100 billion to expedite pension payments, reducing waiting times.
Key sectoral allocations include K693.3 billion for agriculture and irrigation, with targeted investments in mega farms, maize purchases, and farm input programmes. The Affordable Inputs Programme (AIP), although revised, remains a substantial commitment at K131.6 billion.
Investments in tourism (K13.9 billion) and mining (K14.2 billion) signal a strategic shift towards diversifying the economy.
Deficit Financing and Debt Management
The discrepancy between the revenue projections and expenditure estimates will leave the government with a budget deficit of K2.47 trillion that will be primarily financed through domestic borrowing amounting to K2.33 trillion and foreign borrowing of K145.78 billion.
The increasing reliance on domestic borrowing poses risks to financial market stability, as it could crowd out private sector investment and drive up interest rates.
As of September 2024, Malawi’s total public debt stood at K16.19 trillion (86.4 percent of GDP), comprising K7.39 trillion in external debt and K8.79 trillion in domestic debt. The government is engaged in debt restructuring negotiations with official bilateral creditors and commercial lenders.
Multilateral financial institutions such as the International Monetary Fund (IMF) and World Bank have expressed optimism that successful restructuring could ease foreign exchange pressures and create fiscal space for development investments.
However, without sustained revenue growth and expenditure rationalisation, debt sustainability remains a pressing issue.
Implementation Challenges and Policy Considerations
The minister further noted that effectiveness of the 2025/26 budget will depend on several key factors.
Enhancing foreign exchange reserves through export diversification and improved forex management is a priority. The government has outlined measures to curb illegal forex trading, including the establishment of a national anti-forex crime unit.
“The unit shall also be responsible for combating illegal exportation of the country’s minerals and agricultural produce,” he said.
Chithyola-Banda further says the government is developing a comprehensive price stabilisation policy in collaboration with private sector players and consumer protection bodies.
The initiative aims to curb price volatility and ensure affordability for consumers.
As part of structural reforms, authorities plan to strengthen national supply chains through strategic reserves and supply agreements. Additionally, measures are being taken to secure an adequate maize supply, including importation where necessary, to mitigate food shortages.
