The K8.05 trillion National 2025/26 Budget faces a reality check as Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha is tomorrow expected to present the Mid-Year Budget Review Statement in Parliament.
The budget review comes at a time most of the assumptions outlined in the fiscal plan that rolled out on April 1 2025 have turned south more than six months after the budget was passed.
The fiscal plan was tabled by Mwanamvekha’s predecessor Simplex Chithyola Banda, whose administration was voted out in the September 16 General Election.
In the budget, Treasury assumed that during the fiscal year, the economic growth rate was expected to rebound to 3.4 percent while average inflation rate was expected to moderate to 24 percent this fiscal year as foreign grants were expected to contribute K1.14 trillion, highlighting Malawi’s continued dependence on external finance.
However, six months later, Reserve Bank of Malawi (RBM) has already revised downwards the country’s growth rate to 1.8 percent while average inflation rate has been revised upwards to 28.9 percent as the International Monetary Fund projects foreign aid to decline further by nine percent.
RBM data show that the budget has posted a deficit of K1.2 trillion in the first five month of this fiscal year, which is half of the planned K2.47 trillion annual deficit.
Economists say this will force the Treasury to increase borrowing, which will likely surpass the K2.3 trillion benchmark provided in the current budget.
Speaking in an interview on Tuesday, Malawi Economic Justice Network executive director Bertha Phiri observed that the status implies that Treasury projections were faulty, adding that going forward, there is need to ensure that budget projections are realistic and avoiding attaching politics to the budget process.
She said: “This change translates into an additional budget deficit, meaning that revenue generation will be low due to low growth, triggering high public debt levels.
“On the other hand, budget implementation will either have overruns or mid-way there will be significant changes in budget allocations.”
Phiri said at micro economic level, the social sectors will suffer the most, with funding to various sectors, including councils affected.
Mzuzu University economist Christopher Mbukwa, in a separate interview on Tuesday, said “the writing is clear on the wall that the implementation of the 2025-26FY budget is facing enormous pressure and is underperforming”.
He observed that a reduction in growth implies less revenue from taxes while the heightened inflation raises government spending on wages and subsidies as the reduction in donor aid will lead to an increase in the fiscal deficit.
“This is likely to result in drug shortages, delayed teachers’ salaries, affect fertiliser availability, budget cuts to key projects are likely and overall, the economy faces a tighter fiscal space and reduced service delivery,” said Mbukwa.
Economist Milward Tobias said from the start, the assumptions were not realistic, adding that conspicuously missing was the exchange rate policy.
He said: “As a net importer, exchange rate plays a bigger role, much of our inflation drivers are from exchange rate movement and impact on prices of key imports like fuel and fertiliser.
“When you run short of forex, it is the black market that determines the movement in prices.”
The stability in the official exchange rate contrasts with the dynamics observed in the informal market where the rate has significantly depreciated over the same period, with the informal market rate premium reportedly reaching around 150 percent in March 2025 before declining to above 100 percent the next month.
In the 2025/26 fiscal plan, the Malawi Government set a domestic revenue target of K4.44 trillion, 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 was projected at K8.05 trillion with K6.04 trillion allocated to recurrent spending while development was allocated K2.01 trillion.
Debt interest payments are projected at K2.17 trillion (8.4 percent of GDP), consuming 49.2 percent of domestic revenue.
In the financial year, wages and salaries are projected to grow to K1.53 trillion, representing 5.9 percent of GDP and this includes resources amounting to K10 billion for recruitment and K176 billion reserved for general salary increment.
On the other hand, pensions and gratuities is estimated at K170.4 billion, which will cater for the continued clearance of the backlog and monthly pension obligations.
