The World Bank has warned that the government’s inaction on economic challenges that the country is facing could increase recovery costs.
In the latest 20th Malawi Economic Monitor (MEM), which was unveiled yesterday, the bank expressed worry over what it called the excessive use of limited public resources.
It also said high deficits and increasing borrowing had thrown fiscal management off rail in the context of the Extended Credit Facility (ECF) with the International Monetary Fund (IMF).
The bank has since urged the authorities to frame the 2025-26 budget in a way that it begins to reverse the rate of borrowing and over-expenditures as the first move towards restoring macro-economic stability.
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It said this would ensure that the country’s programmes were in tune with the ECF as agreed with the IMF prior to the four-year programme.
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“One year since the start of the government’s new macroeconomic reform programme, supported by an IMF Extended Credit Facility and development partner budget support, efforts to address rising fiscal and external imbalances have faltered,” the report reads.
The bank further expressed worry that being an electoral year, when deficits are normally higher than the rest in an electoral cycle, a repeat of the same would plunge the economy in a deeper crisis.
“Over the past 30 years and five electoral cycles, fiscal deficits during election years were on average 74 percent higher than in the four preceding years. Given Malawi’s existing economic vulnerabilities, a similar lapse in budget discipline would severely compromise macro-economic stability,” the report says.
The bank’s country manager Firas Raad has since urged the authorities to take urgent action as further delays would make the situation unbearable, further raising the cost of recovery.
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“Without undertaking serious reform actions now, the pain of the eventual economic adjustment and the risks of further destabilisation will only continue to grow,” Raad said.
Mining Minister Ken Zikhale Ng’oma acknowledged that the economic situation was challenging.
He was quick to say the government would look at the recommendations made in the MEM and work with partners to restore economic stability.
“I want to assure you that the government is working tirelessly with its partners, including the IMF and the World Bank, to restore macro-economic stability that lays the foundation for sustainable long-term growth run,” Zikhale Ng’oma said.
During a panel discussion, former governor of the Reserve Bank of Malawi Elias Ngalande and Malawi Confederation of Chambers of Commerce and Industry (MCCCI) Chief Executive Officer Daisy Kambalame agreed that 2024 was a difficult year as there were half-hearted efforts made in recovering the economy on the fiscal and monetary policy sides.
“We did nothing to save the situation. So many things went wrong, some of which we should have prepared for but we did not. To me, 2024 was a lost year,” Ngalande said.
He said the economy had been more about consumption and less about production, with indicators pointing to hyper inflation.
Ngalande urged the authorities to cut down on expenditure.
“There is so much wastage in budget execution, without even talking about corruption. Punching the holes would save up some resources for critical areas,” he said.
He suggested the implementation of a zero-deficit budget or lowered one for the 2025-26 fiscal year, saying the government could not afford to have a higher deficit than last year and expect things to improve.
Sharing the private sector’s perspective, the MCCCI CEO said government policies on exchange rate control and borrowing had only made things worse for the private sector, thereby frustrating productivity.
“Discussions have always been there [with the authorities] but what worries [us] is what happens after [that]. This year could be even worse and the worry is what happens next?” Kambalame said.
And, commenting separately on MEM’s findings, British High Commissioner to Malawi Fiona Ritchie called for requisite action.
“Malawi finds itself in a difficult situation but as the World Bank’s Malawi Economic Monitor sets out, there are opportunities for the country to use its natural resources to kick-start development and make its people more prosperous. But this won’t happen unless the authorities make greater inroads in tackling the root causes of Malawi’s current economic problems.
“That’s why I urge the government to double 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 [of Malawi],” Ritchie said.
She also called on the authorities to do something about inflation.
“I don’t underestimate the challenges, but businesses can’t grow and create much needed jobs, and exports and mining can’t catalyse economic growth if inflation is too high, forex is not available and excessive public borrowing crowds out private investment,” she said.
Finance Minister Simplex Chithyola Banda said earlier, at a pre-budget consultation meeting in Lilongwe, that the next budget would have a lower deficit, with more resources committed to productive areas.
