Front PageNational News

World Bank, others push for financial reforms

The World Bank has cautioned that Malawi’s economic recovery is under threat because the September 16 2025 General Election will likely trigger excessive government spending, increased borrowing and focus on short-term political goals.

Speaking in Lilongwe yesterday at the launch of the 20th edition of the Malawi Economic Monitor (MEM), a biennial publication by the World Bank that focuses on economic performance and reforms, the World Bank and other development partners called on the Malawi Government to accelerate public finance management reforms to restore macroeconomic stability and stimulate private sector growth.

Raad: Make restoring stability top priority. | Nation

World Bank country manager Firas Raad said stabilising public finances, increasing foreign exchange reserves and ensuring debt sustainability are critical to attracting private investment and advancing government initiatives in agriculture, tourism and mining (ATM) sectors.

He also highlighted the need to reduce expensive loans and instead increase production and boost exports, warning that 2024 could be a “lost year” in terms of economic progress due to the upcoming election this year, noting that historically, election years are characterised by excessive government spending and focus on short-term political goals at the expense of long-term economic stability.

Said Raad: “Restoring economic stability should be the government’s main priority. Without undertaking serious reform actions now, the pain of the eventual economic adjustment and the risks of further destabilisation will only continue to grow.”

Titled ‘Rising cost of inaction’, the MEM report highlights that progress on macroeconomic reforms under the International Monetary Fund (IMF) Extended Credit Facility (ECF) arrangement signed in November 2023 slowed down in 2024.

In his presentation, World Bank senior economist Jakob Engel said that Malawi has regressed on its reform commitments under ECF.

He also warned that Malawi’s public debt is reaching unsustainable levels, with interest payments alone consuming 43 percent of domestic revenue.

Reacting to the report, British High Commissioner Fiona Ritchie cautioned that Malawi would not be able to capitalise on its mining sector’s potential unless it addresses the root causes of its economic problems.

But she said although Malawi is in a “difficult situation”, there are opportunities for the country to use its natural resources to kickstart development and make its people more prosperous.

Said Ritchie: “That’s why I urge the government to double down on its efforts to control public spending and reduce domestic borrowing, to focus on increasing the availability of forex to the public and private sector rather than controlling the limited current supply and to reduce inflation, including by no longer financing the excessive budget deficit by selling government debt to the Reserve Bank.”

She said businesses cannot grow and create the much needed jobs nor can exports and mining catalyse economic growth if inflation is too high, foreign exchange is scarce and excessive public borrowing crowds out private investment.

Despite the economic challenges, the MEM, in its special report titled ‘Unlocking the potential of Malawi’s mining sector’, identifies mining as a potential game-changer for the economy.

The Malawi Government has signed mining development agreements (MDAs) with three major projects, namely Songwe Hill for rare earths in Phalombe, Kayelekera for uranium in Karonga and Kanyika for niobium in Mzimba. The projects are touted as having the potential to boost exports and increase foreign exchange earnings.

Minister of Mining Ken Zikhale Ng’oma said: “These minerals present a huge opportunity for the government to generate revenue and attract investment.”

However, he acknowledged that Malawi’s mining ambitions face significant challenges, including inadequate infrastructure, high energy costs, and governance concerns.

Malawi’s fiscal consolidation efforts seem to have stalled, with the MEM indicating a widening fiscal deficit due to lower-than-expected revenues and increased spending.

By mid-year, revenue collection stood at 22.3 percent below target, largely driven by lower grant disbursements and weak tax performance.

Government expenditures, particularly on wages, have exceeded budgeted levels, forcing cutbacks on infrastructure and social grants.

During the Mid-Year Budget Review, the Ministry of Finance and Economic Affairs revised the wage bill upwards by a whopping 18.7 percent. Based on the current projections, wages and salaries will account for 21.1 percent of total expenditures.

The MEM has also highlighted fiscal slippages, misalignment between fiscal and monetary policies, widening trade deficits, and weak agricultural output due to erratic rainfall as having hindered economic progress over the past year.

The economy grew by only 1.8 percent in 2024, a downward revision from the two percent projected at the start of the 2024/25 financial year in April. The government, however, had a more optimistic projection of 3.2 percent.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back to top button