Economists say Malawi’s recent economic stabilisation may owe as much to the unwinding of distortions created by years of artificially suppressed fuel prices as it does to improvements in underlying economic fundamentals.
They argue that while inflation has eased, foreign exchange reserves have strengthened and fiscal deficits have narrowed since September 2025, some of the apparent progress reflects the removal of hidden subsidies and market distortions that had previously masked underlying fiscal and external-sector pressures.
The assessment follows a verbal spat between Leader of Opposition in Parliament Simplex Chithyola-Banda and Minister of Information and Communications Technology Shadric Namalomba over the state of the economy.
While Chithyola-Banda accused the Democratic Progressive Party (DPP) administration of failing to address the high cost of living, foreign exchange shortages and rising fuel costs, Namalomba countered that the government inherited an economy burdened by years of poor economic management.
An independent analysis by our sister newspaper The Nation showed that several key macroeconomic indicators have improved since the September 2025 transition. Headline inflation fell from 28.7 percent in September 2025 to 24.3 percent in April 2026, foreign exchange reserves increased from $511.8 million to $571.6 million, and the cumulative fiscal deficit narrowed from K1.356 trillion in the six months to September 2025 to K782.1 billion in the six months to March 2026.
However, the same period also saw fuel prices rise from K2 530 per litre before the September 2025 elections to K6 209 per litre by May this year, leaving households and businesses grappling with sharply higher transport and operating costs.
Scotland-based Malawian economist Velli Nyirongo said the prolonged period during which fuel prices remained fixed despite major currency devaluations likely created significant distortions across the economy.
“When fuel prices remain below cost-recovery levels despite a depreciating exchange rate and rising import costs, the difference is typically absorbed through implicit subsidies, the accumulation of arrears, or pressure on central bank resources,” he said.
Nyirongo said such policies can make fiscal deficits appear smaller than they really are while concealing underlying public debt pressures. He added that inflation may also appear lower than it otherwise would because fuel is a major input in transport and distribution costs.
According to him, foreign exchange demand can also become distorted when fuel importers are rationed or delayed in accessing forex, temporarily easing pressure on reserves while creating hidden liabilities elsewhere in the system.
University of Malawi economics lecturer Edward Lemani said improvements in fiscal balances, inflation and foreign exchange reserves following fuel price adjustments should be interpreted with caution.
“Part of the apparent improvement may reflect greater transparency and the removal of hidden subsidies rather than a sudden strengthening of the underlying economy,” he said.
Lemani argued that fuel price suppression does not eliminate economic pressures but merely postpones them through the accumulation of arrears, fiscal pressures and distortions in foreign exchange allocation.
The economists contend that the sharp fuel price increases that followed the September 2025 transition did not necessarily create many of the economic pressures now being experienced by households. Rather, they exposed costs that had accumulated beneath the surface.
Between November 2023 and September 2025, petrol prices remained unchanged despite two major devaluations of the kwacha that significantly increased fuel import costs. The eventual correction triggered steep increases in fuel prices, transport costs and other non-food expenses.
