Malawi faces a potential decline in foreign exchange inflows amounting to $177 million (about K310 billion), or 6.3 percent of the country’s annual import bill this year following the cancellation of United States foreign aid, it has emerged.
In its analysis of the economic and welfare implications of the reduction of US foreign assistance in Malawi, International Food Policy Research Institute (Ifpri) says it expects the situation to result in gross domestic product (GDP) loss of $127 million (about K222 billion) this year.
By 2030, Ifpri projects that the six-year cumulative GDP losses will likely amount to $1.3 billion (about K2.3 trillion) with over half-a-million additional people falling into poverty trap.
Reads the analysis in part: “By 2030, Malawi’s economy will be $304 million [about K532 billion] smaller than it would have been in the absence of the US foreign assistance shock.
“The combination of reduced employment opportunities and suppressed wages following the contraction of the service sector and higher costs of living driven by rising import prices affect welfare outcomes in Malawi.”
Ifpri said under the current exchange rate regime, the official rate of the kwacha does not respond to changes in dollar supply, which limits the economy’s ability to self-correct, leading to persistent US dollar shortages.
Based on a list of cancelled and retained awards and information on 2024/25 disbursements, Ifpri estimates that US foreign assistance to Malawi could decline by 59 percent in 2025.
United States Agency for International Development (USAid), the hitherto biggest development agency on the planet, was giving $350 million (about K630 billion) to Malawi annually, according to the US State Department.
That amount is equivalent to roughly 12 percent of the 2024/2025 National Budget and represents just over a third of the country’s annual export earnings, according to Ifpri calculations.
Following the aid cut, Reserve Bank of Malawi (RBM) said it is devising strategies to cushion the economy from the impact of the temporary ban on foreign aid imposed by the US.
RBM spokesperson Boston Maliketi Banda is on record as having said the temporary ban on foreign aid is a concern for many developing countries, including Malawi.
“This is one of the reasons the governor [of RBM] has embarked on an engagement drive with key stakeholders to collaboratively develop practical and implementable strategies to address such shocks and sustainably address the forex supply shortages in the country,” he said.
Catholic University economics lecturer Greenson Nyirenda said in an interview on Wednesday that the loss could worsen the country’s foreign exchange crisis, which has dampened forex reserves to less than three months of import cover.
“The funding by international organisations remains one of the significant sources of forex for countries such as Malawi that have low exportation capacity. This will hit them hard,” he said.
Scotland-based Malawian economist Velli Nyirongo warned that reduction in foreign exchange reserves could weaken the government’s ability to meet external obligations and destabilise the exchange rate.
As of January 31 2025, the country’s total foreign exchange reserves increased by 7.5 percent to $570.6 million (about K1 trillion) from $530.9 million (about K929 billion) in December 2024.
The import cover improved to 2.3 months from 2.1 months during the period under review.
Whiile during the same period the previous year, the total foreign exchange reserves were at $576.7 million (about K1 trillion), which translated to 2.3 months of import covr.
In December last year, the Malawi Government introduced a new set of foreign exchange controls that would require public institutions, including research institutions and public universities with donor-funded projects to open foreign-currency denominated accounts at RBM.
