Malawi started the year 2025 hoping to stabilise its economy after a turbulent 2024 that was marked by sharp currency devaluation, inflation spikes and the scramble to restore confidence with the International Monetary Fund (IMF) and other development partners.
But by the year’s end, the country had made some progress towards stabilisation, but the underlying pressures remained evident. Inflation stayed elevated at 27.9 percent as of November 2025, according to the National Statistical Office, foreign exchange shortages persisted, hovering at below two months of import cover and growth failed to gather the momentum policymakers projected at the start of the year.
A year of fragile stabilisation
throughout the year. | Nation
During the year, economic activity remained weak across several sectors. Manufacturers complained of foreign exchange rationing and irregular fuel supply while persistent power outages raised production costs. Inflation eased only gradually and continued to erode disposable incomes.
Although the government argued that reforms were starting to take hold, pressures from money supply expansion, limited exports and elevated import costs made stabilisation difficult.
Reserve Bank of Malawi (RBM) Governor McDonald Mafuta Mwale acknowledged the tension between the policies, noting that “we are tightening with one hand and loosening with the other”.
High interest rates of above 35 percent were intended to curb inflation, yet domestic borrowing and fiscal slippages continued to add liquidity into the system. Government nonetheless insisted conditions would improve as maize availability strengthened and debt restructuring advanced.
Budget projections and how they shifted over time
When former minister of Finance and Economic Affairs Simplex Chithyola Banda presented the 2025/26 National Budget in February, the outlook leaned towards cautious optimism.
He told Parliament that “the economy is expected to rebound to 3.4 percent” and projected inflation would fall to 24 percent due to tighter monetary conditions and improved food supply. Revenue was expected to rise, grants were projected to flow and the deficit was presumed manageable.
But these assumptions quickly lost ground. In his Mid-Year Budget Review Statement, Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha, Chithyola Banda’s successor, conceded that “the macroeconomic assumptions underpinning the original budget no longer hold”.
Growth was revised downward to 2.7 percent while average annual inflation projection was adjusted upward to 28.5 percent. Revenues fell short by over 12 percent and grants dropped by 43 percent below target.
Mwanamvekha attributed this to “persistent revenue underperformance, rising costs and limited fiscal headroom”.
The mismatch between projections and reality highlighted structural weaknesses that monetary tightening alone could not resolve.
How the budget was modified at mid-year
To respond to the worsening conditions, Treasury revised the budget upwards by K512.6 billion to K8.589 trillion.
Mwanamvekha described the adjustment as necessary to “restore order and fiscal credibility,” even as expenditures overshot targets across wages, pensions, elections, maize purchases and utilities.
The deficit widened from K2.498 trillion to a projected K3.128 trillion. Domestic borrowing continued climbing, pushing public debt to K21.6 trillion, about 86 percent of GDP. Interest payments consumed almost half of domestic revenue.
“Servicing past debts is significantly limiting fiscal space for productive investments,” said Mwanamvekha.
Government pledged stricter cash-budgeting, expenditure controls and procurement reforms.
But analysts argued that the measures, while necessary, would not immediately resolve the deeper constraints of low export earnings, volatile imports and fragile private-sector activity.
Stakeholder reactions: Sharp and revealing
Economics Association of Malawi president Bertha Bangara-Chikadza was blunt in her assessment.
“The issue is not just the size of the budget. It is the architecture behind it,” she said.
Bangara-Chikadza, a lecturer in economics at the University of Malawi in Zomba, noted that interest payments exceeding K200 billion in some months reflect a fiscal system under strain.
She cautioned that financing recurrent costs through domestic borrowing was creating a “debt–inflation loop that Malawi cannot afford”, and argued that borrowing must be reserved for high-return development projects that expand productive capacity.
Private sector leaders shared this concern.
Malawi Confederation of Chambers of Commerce and Industry president Wisely Phiri said the business community was troubled by “rapid budget expansion without corresponding macroeconomic improvements.”
He described short-term domestic borrowing as the budget’s “biggest design flaw”, saying it “raises interest rates, constrains private-sector credit and discourages long-term investment”.
On the other hand, the financial sector also sounded caution, with Bankers Association of Malawi president Phillip Madinga saying the value added tax (VAT) increase and super-profit tax would add cost pressures across the economy.
“Higher VAT will push up prices. Combined with tight liquidity, we expect softer demand for long-term credit and increased risk in vulnerable sectors,” he said, adding that unless spending discipline improveds domestic borrowing pressures will persist and monetary conditions will remain tight.
From a social protection standpoint, the Centre for Social Concern (CfSC) offered an equally sober view.
CfSC programme officer Agnes Nyirongo said the VAT increase was “highly regressive and poorly timed,” arguing that low-income households “have not recovered from previous inflation shocks”.
While acknowledging improvements in Pay As You Earn progressivity, she said “the regressive impact of VAT far outweighs these gains”, warning that poverty levels were likely to rise without expanded social safety nets.
Way forward
Malawi’s performance in 2025 underlines the need for deeper economic reforms.
The country continues to face high debt, weak export growth, limited fiscal space and persistent supply-side constraints.
Without such reforms, Malawi risks remaining suspended between stabilisation and stagnation.
As the country heads into 2026, the challenge is clear—to shift from managing crises to resolving them.
Only then can Malawi lay the foundation for sustained economic recovery.
