Malawi’s budget for 2024/25 has hit a rough patch halfway through the financial year, as recent figures show a major gap between the government’s optimistic economic forecasts and the current reality.
In April, Finance Minister Simplex Chithyola-Banda presented the budget to Parliament with hopeful predictions. The Minister anticipated inflation would drop to 23.4 percent, and the economy would grow by 3.2 percent. However, six months later, the numbers are painting a different picture.
Just three months into the K5.99 trillion budget, the Reserve Bank of Malawi (RBM) cut its growth forecast to 2.3 percent, citing the impact of unpredictable weather patterns caused by El Niño.
International financial institutions, including the International Monetary Fund (IMF) and the World Bank, have been even more pessimistic, forecasting growth as low as 2.0 percent and 1.5 percent, respectively, for 2025. These numbers point to a possible economic slowdown, which could strain Malawi’s finances further.
Inflation is also much higher than expected, now standing at 34.3 percent instead of the projected 23.4 percent. A key driver of inflation is the rising cost of maize, Malawi’s staple food, which has gone up from K709 per kilogram in April to K790 per kilogram in September. This increase in maize prices is putting additional pressure on household budgets, especially as wages have not kept pace with these rising costs.
Economic experts are concerned about these developments. While some of the issues can be blamed on factors outside of Malawi’s control, such as international economic conditions and weather challenges, there is a feeling that the government’s policy decisions and execution should also be questioned. According to RBM data, the kwacha, Malawi’s currency, has dropped by 3.2 percent against the dollar, which has increased the cost of imports, adding further strain to the government’s finances.
Economics Association of Malawi acting president Dr Bertha Bangara-Chikadza, who also teaches economics at the University of Malawi, says that the gap between the government’s projections and the reality could make it difficult to implement the national budget as planned.
She cautions that the weakening kwacha has pushed up the costs of imported goods like fuel and agricultural inputs, which are essential for the country. This issue is further complicated by Malawi’s high reliance on foreign financing, meaning that rising debt costs could become a major problem if these economic challenges continue.
According to the 2024/25 budget Chithyola-Banda presented before Parliament, the government will contribute a paltry K383.6 billion or 22 percent of the total development budget, leaving the donors to carry the burden of financing Malawi’s development with a K1.37 trillion contribution or 78 percent of the total capital spending.
Considering the low absorption rates for development financing, it was clear from the start that the budget would face some significant risks.
Velli Nyirongo, an economist based in Glasgow, adds that slower economic growth could lead to lower tax revenue, forcing the government to borrow more to cover its commitments. He notes that this could increase Malawi’s debt, making the country more vulnerable to external shocks and putting its financial stability at risk. Higher debt servicing costs could consume funds that would otherwise go toward public investments in crucial areas like health, education, and infrastructure.
To help correct this course, the analysts suggest that the government should focus on improving tax collection efficiency, reduce borrowing, and work to keep food prices stable. They also believe the government should adjust subsidies and focus more spending on high-growth areas such as tourism.
Building stronger trade partnerships and investing in renewable energy could also help Malawi become less dependent on imports, potentially reducing inflationary pressures in the future.
The government should prioritise spending in high-impact areas to make the most of limited resources. It may be necessary to reconsider the government’s current spending policies, as these could be fuelling inflation. By making better use of resources and cutting down on non-essential expenditures, the government could ease some of its financial burdens.
Malawi’s 2024/25 budget faces serious challenges, with growth projections falling short and inflation rising, which could lead to more borrowing and further debt. The situation requires quick, decisive action from the government.
Experts agree that Malawi’s path forward should focus on sensible spending, targeted investments, and better fiscal policies to help steer the country through these difficult times.
