Malawi’s fiscal stability came under renewed scrutiny in May 2025 after the national budget deficit surged to K300 billion—more than double the previous month’s shortfall and nearly triple that of the same period last year—raising fears over the country’s ability to sustain development and protect vulnerable populations.
The widening deficit, detailed in the Reserve Bank of Malawi’s latest Monthly Economic Review released on Wednesday, has fuelled criticism from civil society and international observers over the government’s fiscal direction.
The report links the deterioration to a sharp decline in revenue collections coupled with rising recurrent expenditure, prompting renewed questions about Malawi’s budget structure and its long-term developmental impact.
Total government revenue for May fell by K86.7 billion (19.9 percent) to K348.4 billion, largely due to a K54.8 billion (17.4 percent) drop in tax collections, which stood at K260.7 billion. Non-tax revenues and donor grants also posted notable declines, with grant inflows decreasing by K8.3 billion (12.4 percent) to K58.2 billion.
On the expenditure side, total spending rose by K82.8 billion (14.6 percent) to K648.4 billion, driven mainly by recurrent costs. Recurrent expenditure jumped by K94 billion (21.2 percent) to K536.3 billion, while development spending was cut by K11.2 billion (9.1 percent), falling to K112.1 billion.
The shift in spending composition has raised concerns about the government’s fiscal priorities at a time of deepening inequality and constrained growth.
Cumulatively, the fiscal deficit for April and May—the first two months of the 2025/26 financial year—has reached K430.4 billion, representing 54.9 percent of total expenditure amounting to K783.5 billion over the same period.
The situation has coincided with warnings from organisations such as Oxfam International, which recently listed Malawi among 44 African countries that have cut back on social spending in order to meet debt obligations, despite already being classified as in debt distress.
The report attributes rising inequality on the continent to elite-friendly fiscal systems, limited wealth taxation, and intensifying pressure on public services.
Locally, the shift in Malawi’s fiscal balance is being viewed with growing alarm. Agnes Nyirongo, economic governance officer at the Centre for Social Concern, said the reduction in development expenditure threatens to derail long-term poverty reduction efforts.
“The cuts to development spending are especially worrying,” she said. “They undermine long-term poverty reduction. If we continue increasing recurrent costs—largely salaries and administrative overheads—while cutting investments in health, education and infrastructure, we’re simply locking ourselves into a low-growth, high-inequality future.”
In an earlier interview, economic statistician Alick Nyasulu cautioned that rising government deficits, coupled with the foreign aid and debt squeeze, will force the government to borrow more from the domestic market.
He warned that this would worsen the crowding out effect—a situation where the private sector cannot access loans from commercial banks.
He said in a WhatsApp response. “Interest rates will continue to rise because government can afford to pay more, but the private sector cannot grow under such expensive financing conditions.”
The Malawi government, through the Ministry of Finance and Economic Affairs projected that the government will close the 2025/26 financial year with a fiscal deficit of 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.
However, the budget passed showed that the deficit would rise to K2.49 trillion.
