The World Bank has commended Malawi for achieving a significant milestone in its efforts to restore macroeconomic stability. For the first time in over five years, the country has executed its national budget within approved limits. World Bank Group division director for Malawi, Tanzania, Zambia, and Zimbabwe, Firas Raad, made this announcement during the launch of the 23rd Malawi Economic Monitor (MEM) in Lilongwe.
According to Raad, the primary fiscal deficit has decreased sharply from 3.7 percent to 0.4 percent of gross domestic product (GDP). This development is seen as an important institutional achievement. However, Raad noted that Malawi is still showing early signs of economic adjustment, which have not yet translated into a meaningful improvement in living standards. The country's GDP growth is projected at 2.7 percent in 2026, a slight increase from 2.5 percent in 2025.
Despite the progress, persistent challenges continue to constrain investment and productive activity in Malawi. These challenges include inflation, foreign exchange distortions, unreliable energy, weak domestic supply chains, and a difficult business environment. Raad emphasized that growth remains insufficient to substantially increase incomes and create better-paying jobs. The World Bank report highlights that fiscal consolidation efforts have begun to yield results, with the overall fiscal deficit narrowing to 8.8 percent of GDP in the 2025/26 financial year.
The MEM report also notes that large interest payments continue to absorb government revenues that could otherwise finance productive investment and social services. To address these challenges, Raad stressed the need for sustained structural reforms. Minister of Finance, Economic Planning, and Decentralisation, Joseph Mwanamvekha, reaffirmed the government's commitment to pursuing reforms aimed at stabilizing the economy. These reforms include negotiations for a new programme with the International Monetary Fund (IMF).
Mwanamvekha emphasized that the new programme will reflect Malawi's priorities rather than being imposed by the IMF. He stated that reforms under the programme will be carefully timed and sequenced to protect vulnerable households. The World Bank report highlights an IMF-supported programme as a crucial anchor for Malawi's economic stabilization efforts. A previous four-year $175 million IMF programme collapsed in May 2025 due to the Malawi Government's failure to complete reviews for 18 months.
The World Bank report also evaluated the government's five-year National Economic Recovery Plan, noting its strengths, including broad coordination across government and a results-oriented framework aligned with Malawi 2063. However, the report warns that some expansionary investment proposals conflict with fiscal consolidation objectives. An IMF-supported programme could help strengthen policy credibility, support fiscal discipline, and unlock additional concessional financing.
Despite emerging gains, living standards in Malawi remain under pressure. National poverty has declined from 50.7 percent to 47.3 percent, but food poverty has increased from 20.5 percent to 24 percent, and inequality has worsened. The MEM emphasizes that sustaining fiscal discipline, addressing debt and foreign exchange market distortions, and creating conditions for stronger private sector-led growth will be critical to realizing positive gains from the early stabilization efforts.
Key points
- The World Bank has praised Malawi for executing its 2026/27 National Budget within approved limits for the first time in over five years.
- Malawi's primary fiscal deficit has decreased sharply from 3.7 percent to 0.4 percent of GDP.
- The country still faces challenges, including inflation, foreign exchange distortions, and a difficult business environment.
