Malawi’s fiscal deficit surged to unprecedented levels in 2025, breaching the K3 trillion mark largely due to election-related spending and persistent revenue underperformance which created a perfect storm of budgetary pressures that international financial institutions had warned about months earlier.
The deficit widened by K630.2 billion, representing a 25.2 percent overrun, from the approved K2.49 trillion to reach K3.12 trillion by year-end, according to figures presented in Parliament by Finance Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha’s Mid-Year Budget Review in November. This translates to 11.9 percent of gross domestic product (GDP), up from the initially projected 9.6 percent.
September: The deficit peak
Reserve Bank of Malawi data reveal the extent of fiscal deterioration during the election period. In September, the deficit reached K327.4 billion—the highest monthly figure recorded in 2025. This represented more than triple the K92.5 billion deficit registered in July and exceeded the K300 billion gap recorded in May.
Between April and September 2025, cumulative deficits totalled K1.457 trillion, averaging K243 billion per month. Election costs contributed directly, reaching K212.9 billion by the end of September—a K50 billion overspend, representing 30.7 percent above the approved allocation.
“There has been significant spending during the election season, which may have contributed to the deficit,” said Christopher Mbukwa, economics lecturer at Mzuzu University. “The problem is not only the amount spent but how little flexibility the government has to scale down once the cycle begins.”
Warnings materialised
The fiscal deterioration vindicated earlier predictions by multilateral institutions.
In July 2025, the World Bank cautioned in its Malawi Economic Monitor that deficits in election years have historically in excess of 70 percent than in non-election years. The bank noted that domestic interest payments alone were projected to absorb 50.2 percent of tax revenue.
The International Monetary Fund (IMF), in its August 2025 Malawi staff report, predicted “a large primary deficit in 2025 due to election year spending, declining only gradually over the medium term as the rising interest bill crowds out primary spending.” The IMF added that “only limited progress is projected to be made on revenue raising measures in the context of persistent spending pressures.”
Revenue and expenditure pressures
While expenditure surged, revenue collection faltered dramatically. Total revenue and grants in the first half amounted to K2.383 trillion against a projection of K2.71 trillion—a
12.1 percent shortfall. Domestic revenue underperformed by 3.8 percent, while grants disappointed with a 43 percent shortfall.
Total expenditure in the first half reached K4.42 trillion, overshooting the K4.24 trillion target by K175.7 billion. Wages and salaries exceeded targets by K125.9 billion—a 19 percent overrun driven by massive recruitments in security, education and health sectors as well as a 100 percent increase in chiefs’ honoraria. The wage bill now consumes nearly 40 percent of domestic revenue.
austerity measures.INation
Structural Weaknesses Exposed Centre for Social Concern economic governance officer Agnes Nyirongo described the imbalance as “a systemic fiscal crisis that demands urgent attention.”
“The five-month balance means the government is spending almost half more than it collects in revenue,” she said. “That trajectory risks squeezing health, education and agriculture while raising borrowing pressures.”
Scotland-based Malawian economist Velli Nyirongo warned that the widening gap could prompt government to resort to more domestic borrowing, “potentially leading to higher interest rates and worsening inflationary pressures.”
Analysts identified three structural vulnerabilities: a narrow and cyclical revenue base, rigid recurrent commitments, and politically sensitive spending pressures that eroded fiscal buffers.
Government response: austerity and revenue measures
In his Mid-Year Budget Review Statement delivered on November 21, Mwanamvekha acknowledged the fiscal crisis while defending the new Democratic Progressive Party administration’s handling of inherited challenges.
“When this administration assumed office, we found the economy in an exceptionally fragile state,” he told Parliament. “The Malawi Congress Party Government left behind an economy characterised by unsustainable debt, chronic fiscal deficits, depleted foreign exchange reserves, and a loss of investor confidence.”
The minister outlined sweeping expenditure control measures including limiting external travel by senior officials to three trips annually, suspending new recruitments except in essential services, imposing a moratorium on vehicle procurement, and reducing fuel entitlements by 30 percent.
To shore up revenues, government introduced a 0.05 percent bank transfer levy, raised VAT from 16.5 to 17.5 percent, increased the top personal income tax rate to 40 percent for incomes above K10 million, and reintroduced a 20 percent surcharge on cement imports.
Government also acknowledged that certain expenditures were one-off payments.
“It must be noted that some of the expenditures that have increased the deficit are one-off payments such as clearing the backlog of pensions and gratuities, elections and maize purchase,” Mwanamvekha stated, projecting that the deficit would “substantially be reduced” going forward.
Medium-term concerns
Despite government assurances, analysts warn the challenge extends beyond addressing the election-year bulge. Malawi’s public debt stood at K21.6 trillion—86 percent of GDP—as of mid-year, up from K4.1 trillion in 2019. Domestic interest payments create a structural constraint that limits fiscal flexibility.
The second-half fiscal deficit is projected at K1.091 trillion, to be financed primarily through domestic borrowing of K984.3 billion. This continued reliance on domestic financing risks crowding out private sector credit and maintaining upward pressure on interest rates.
“Restoring credibility will require tangible reforms in budget discipline and transparency,” Nyirongo of the Centre for Social Concern argued. “Weak controls during politically sensitive periods risk entrenching overruns that crowd out essential services and increase borrowing needs.”
Whether the K8.07 trillion revenue projection for 2025/26 translates into genuine fiscal stability will depend on the successful implementation of revenue measures, sustained expenditure discipline, and restoration of donor confidence—all against the backdrop of foreign exchange shortages and elevated inflation that continue to constrain economic activity.
