Government revenues surged in July 2025, narrowing the fiscal deficit to its lowest level in four months, but analysts warn that Malawi remains trapped in a cycle of rising deficits that could undermine debt sustainability.
In its July issue of the Monthly Economic Review, the Reserve Bank of Malawi (RBM) show total revenues climbed to K647.4 billion in July, up 65 percent from June’s K392.1 billion.
Tax collections more than doubled to K519.2 billion, while grant inflows rose 56.6 percent to K103.5 billion.
The strong revenue outturn helped trim the monthly deficit to K92.5 billion, down from K238.9 billion in June and K300 billion in May.
However, government spending continued to rise, reaching K740 billion in July. Recurrent expenditure accounted for the bulk at K570.3 billion, while development spending accelerated to K169.6 billion, a 66 percent increase from June.
Interest payments also rose to K202.2 billion, reflecting growing debt-servicing costs.
Since the start of the 2025/26 financial year in April, the government has accumulated a K761.8 billion deficit, with expenditures (K2.5 trillion) far outpacing revenues (K1.8 trillion).
Effectively, this means the government has spent 32 percent of the K8.07 trillion budget Parliament passed earlier in March.
This would be in line with the government’s spending patterns, but economic analyst Dalitso Kubalasa, cautioned against reading too much into spending patterns before the end of the financial year.
Reacting to the developments, Mzuzu University agriculture economist Christopher Mbukwa said the July revenue gains are likely to hold but cautioned that the fiscal position remains fragile.
“Not necessarily a fluke. The revenues and grants will likely stay the same. Usually, the revenue collections match the projection made at the onset of the budget,” he said.
“On the grants, those are already declared at the beginning of the financial year. The only way the grants drop is if the government does not comply with some donor requirements.”
But Mbukwa warned that persistent fiscal gaps remain a major concern.
“The persistent deficits are a cause for concern. We are accumulating deficits on deficits,” he said.
Mbukwa says sustained domestic borrowing to finance the gap could crowd out private sector credit, put upward pressure on interest rates, and limit fiscal space for future development projects.
The July figures come at a time when the government is under pressure to balance fiscal consolidation with increased investment in infrastructure and social sectors.
In an earlier interview, Scotland-based Malawian economist Velli Nyirongo urged Treasury to contain recurrent spending while protecting capital outlays that drive growth.
With interest payments now consuming more than K200 billion per month, analysts say improving debt management and reining in non-priority spending will be crucial to keeping the deficit from widening further in the second-half of the fiscal year.
