Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha says a recent $80 million (about K140 billion) World Bank grant and pending Rapid Response Facility stand to stabilise the economy and cushion external shocks.
In an exclusive interview with The Nation, the minister said the government plans to use the newly approved grant and the facility under negotiation to stabilise the economy by easing foreign exchange pressures, reducing reliance on domestic borrowing and creating fiscal space for development.
“This [$80 million] grant will provide us with much-needed foreign exchange and that will also help us in stabilising our exchange rate and economic stability in general,” said Mwanamvekha.
He said the financing would ease pressure on domestic borrowing.
“The coming of this money will help us to create some fiscal space for us to do development without necessarily going to borrow,” said Mwanamvekha.
The development comes against a background of the country grappling with mounting fiscal pressure with public debt estimated at K24 trillion against annual tax revenues of about K6 trillion. With limited revenue and rising financing needs, concessional inflows are increasingly emerging as a critical lever for macroeconomic stability.
Rapid response support under negotiation
The minister said the government is also discussing with the World Bank Group for additional support under a Rapid Response Facility (RRF) to help cushion the economy from rising fuel prices and their knock-on effects.
He said the facility, structured as budget support rather than a project, would help stabilise the economy and mitigate the impact of external shocks, particularly on inflation and vulnerable households.
“This increase in fuel prices will affect demand for foreign exchange and also drive up the cost of goods and services, particularly affecting poor households,” said the minister.
Mwanamvekha further said that Malawi submitted its application for the facility on Friday following recent engagements with World Bank officials.
But the minister could not specify how much Malawi is seeking under the RRF, stating that the value will be determined by a “formula and calculations” used by the Bretton Woods institution and member States.
Further, Mwanamvekha expressed gratitude to the World Bank for supporting the Malawi Government to cushion the local economy from the fallout of the US-Israel war on Iran.
“The financial support will help us protect our most vulnerable and poor populations,” he said.
Unlike the $80 million Governance to Enable Service Delivery (Gesd) phase two 2.0 programme which is tied to specific investments and performance conditions, the RRF is designed as flexible budget support to provide immediate fiscal relief.
The two instruments reflect a dual approach of addressing immediate economic shocks while attempting to build longer-term fiscal and institutional resilience.
From service delivery to economic stimulus
The Gesd 2.0 is designed to strengthen financial management and governance at local authority level while improving service delivery across the country.
Key to this project is a $60 million (about K105 billion) allocation for performance-based grants to district and municipal councils, with additional funding for systems strengthening and project management.
The programme has broader economic implications beyond decentralisation and service delivery. By channelling resources directly into local authorities, the project injects liquidity into district economies through procurement, wages and local supply chains—effectively acting as a decentralised fiscal stimulus.
Mwanamvekha said the programme—covering roads, bridges, schools, health facilities and other community infrastructure—would also help cushion rural economies, particularly in the wake of climate-related shocks.
Accountability as a stabilisation tool
Beyond its macroeconomic role, the minister said the programme’s success will hinge on its performance-based structure and built-in accountability mechanisms.
Under the model, local authorities compete for funding based on their ability to plan, implement and account for projects effectively, with communities directly involved in identifying and monitoring investments.
“The beauty about this particular project… is accountability,” said Mwanamvekha.”
This approach aligns with the World Bank’s design, which ties disbursements to measurable performance through tools such as the Local Authority Performance Assessment (Lapa) aimed at strengthening transparency and efficiency in public resource management.
Stabilisation—at the margins
Reacting to the grant, economists said in separate interviews that its stabilisation impact will be limited, though still meaningful at the margins.
In an interview, Scotland-based Malawian economist Velli Nyirongo said while the grant can support the economy in the short term “it is not large enough on its own to transform macroeconomic stability”.
“In this context, the grant mainly provides short-term relief,” he said, adding that it could still ease pressure on interest rates and inflation by reducing government borrowing from local banks.
University of Malawi economics lecturer Edward Leman said the funding “should not be dismissed,” noting that it can ease pressure on foreign reserves and support targeted development spending.
Malawi’s economy is faced with slow growth and the United Nations (UN) recently said economic transformation remains slow and constrained by deep structural weaknesses that could derail further implementation of Malawi 2063 (MW2063), the country’s long-term development strategy that seeks to graduate the economy to lower middle-income status by 2030 and upper middle-income by 2063.
In its recently published Common Country Analysis, the UN says despite recovery efforts, the economy is struggling with low growth, rising vulnerability and limited transformation which threaten sustainable transformation.
In the 2026/27 National Budget, economic growth is projected to rise to 3.8 percent in 2026 from 2.7 percent in 2025 and further strengthen to 4.9 percent in 2027.
