The International Monetary Fund (IMF) says while the revised 2025/26 National Budget shows progress in mobilising revenue and controlling spending, deeper and medium-term fiscal reforms are key to stabilise the economy and support recovery.
In a written response in the context of the Mid-Year Budget Review, IMF resident representative Nelnan Koumtingue cautioned that Malawi’s continued reliance on domestic financing, coupled with large fiscal deficits and rising public debt, pose serious risks to macroeconomic stability.
He said: “The Mid-Year Budget is a step in the right direction. However, the levels of the deficit and domestic financing are still too high.
“We encourage the authorities to operationalise these measures and more broadly to implement a comprehensive fiscal reform package anchored on a medium-fiscal framework to support stabilisation, reduce debt and aid an economic recovery.”
Koumtingue said high inflation rate currently at 27.9 percent and low growth spiral from large fiscal deficits and unsustainable public debt are fuelling Malawi’s cost of living crisis.
He said restoring macroeconomic stability is essential for safeguarding the purchasing power of Malawians while creating fiscal space sustainably is needed for the government to invest effectively in infrastructure and social programmes.
During the Mid-Year Budget Review, Treasury revised upwards the 2025/26 fiscal plan by K512.6 billion from K8 trillion to K8.5 trillion with a total deficit projected at K3.1 trillion compared to the approved budget deficit of K2.5 trillion.
In the second half of the financial year, total revenue and grants are projected at K3 trillion with K2.4 trillion domestic revenue and K657.5 billion grants.
On the other hand, total expenditure is projected at K4.2 trillion for the second half, comprising K3.2 trillion recurrent expenditure and K1 trillion as development expenditure.
In an interview on Thursday, economist Edward Chilima said reforms will be required to minimise the rising public debt, observing that strengthening revenue collection while not tightening expenditures will lead the country into a vicious circle.
He said: “Without fiscal reforms, we will be dancing in circles. It has to be a complete package of enhanced revenues and also implementing tight fiscal reforms.
“We have to strive for a debt restructure because this is what is choking the fiscal space. We have to minimise creating new debt and this is where deeper reforms come in.”
Mzuzu University economics lecturer Christopher Mbukwa said reforms should not be mere expenditure controls, but include serious resource generation strategies to broaden the tax base without worsening the welfare of people and curb excessive domestic borrowing.
“Public spending is rising on account of easy and accessible domestic borrowing, fuelling inflation further and weakening the macroeconomic stability,” he said.
Meanwhile, World Bank data show that over the past decade, Malawi’s tax-to-gross domestic product (GDP) ratio has increased by more than three percentage points to nearly 15 percent.
However, this remains below the 17 percent target set in the Domestic Revenue Mobilisation Strategy for 2024/25 fiscal year and with total expenditure at 31 percent of GDP, current revenue levels are far from adequate.
