The African Development Bank (AfDB) says spending for the September 16 General Election poses “significant fiscal risks” and other policy missteps that threaten economic growth.
The pan-African bank’s assertion comes after the World Bank’s Malawi Economic Monitor also said recently that election year spending and the need to absorb some critical expenditures, including those previously financed through the now dwindling aid inflows, will widen the budget deficit.
In its Malawi 2025 Country Focus Report titled ‘Making Malawi’s capital work better for its development’, AfDB says the situation could be compounded by increased geopolitical tensions, global trade wars and reduced external financing.
Reads the report in part: “Major risks to the growth and macroeconomic stability outlook include a tepid recovery, high inflation, food insecurity, vulnerabilities in the banking sector and a protracted delay in resolving the debt crisis and climate shocks.
“The government needs to moderate its expansionary fiscal policy to support tight monetary policy efforts from the central bank.”
The multilateral bank has since proposed two policy options to accelerate economic development, notably boosting agricultural productivity through mega farms and mechanisation as well as actualising the agriculture, tourism, mining and manufacturing (ATM+M) strategy.
It says the success of mega farms will hinge on ensuring that all completed water infrastructure investments are fully utilised to maximise returns.
Further, AfDB says a critical enabler of the efforts would be the creation of a conducive business environment to attract both domestic and foreign private capital, which will require sustained macroeconomic stability and streamlined regulatory processes.
On the ATM strategy, touted as the key driver to economic recovery, the AfDB said its success would be dependent on ensuring that necessary skills are available either by developing them locally or by revising the temporary residence policy to attract skilled foreign labour where needed.
Further reads the report: “Emerging risks, including aid cuts and heightened protectionism, require the government to reduce dependence on aid, diversify the economy and export markets, including fully adapting to the continental trade market.
“Moreover, putting in place a structured diaspora labour market and mobilising remittances through formal channels must be accompanied by appropriate exchange rate policies.”
While domestic revenue has increased from 12.5 percent of gross domestic product (GDP) in 2022 to 18 percent in 2024, AfDB maintains that expenditure has continued to outpace revenue growth, leading to widening fiscal deficits.
In the aftermath of the collapse of the Extended Credit Facility (ECF) with International Monetary Fund (IMF) in May this year, President Lazarus Chakwera insisted that Malawi opted out of the ECF because the Bretton Woods institution was pushing for a fresh kwacha devaluation, upward adjustment of fuel prices and electricity tariffs and freezing some social spending.
The World Bank recently called for increasing domestic revenues through reforms to increase the progressivity of the tax system and the efficiency of tax administration, reducing wasteful spending.
The Bretton-Woods institution also urged phasing out the implicit fuel subsidy, implementing reforms to enable the mining sector to support growth over many decades, removing foreign exchange surrender requirements and reducing trade barriers.
