The African Development Bank (AfDB), the World Bank and the United Nations (UN) have urged authorities to act swiftly to stabilise Malawi’s economy.
The call comes as Malawi is experiencing its most severe foreign exchange and balance-of-payments (BoP) crises since independence, which have sharply slowed economic activity, increased the cost of living and led to widespread shortages of fuel, fertiliser, pharmaceuticals and other essential goods.
Gross official reserves at the Reserve Bank of Malawi (RBM) now cover less than two weeks of imports, and net reserves have been negative since 2020.
Accessing forex is difficult even on the parallel market, where rates exceed the official rate by around 150 percent, the second-largest spread worldwide.
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In their joint report, ‘No Time to Waste: Policy Priorities for Malawi’s Recovery’, the three institutions argue that the forex crisis is a symptom of deeper macroeconomic imbalances.
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They argue that resolving Malawi’s BoP crisis will require comprehensive reforms and sustained effort to reverse years of distortions.
They further observe that unifying the official and parallel market rates will demand adjustment and a shift in exchange rate policy, in contrast to the one-off changes to the official exchange rate made in 2022 and 2023.
“Additional actions will be required to protect poor households from the inflationary impact of any exchange-rate adjustments.
“The experience of Malawi and other countries shows these reforms are possible, but success depends on sustained commitment, clear communication with the financial sector and the public and targeted support for those most affected by reforms,” the three institutions say.
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Within the first three months, they suggest that the government should tighten both monetary and fiscal policies to stabilise the parallel exchange rate and bring inflation under control.
They warn that the shortages cannot be resolved unless Malawi decisively reduces its fiscal and external deficits, which continue to undermine confidence and drain foreign currency.
The report calls on government to press ahead with plans to achieve a primary budget surplus by 2027 and to end monetary financing of the fiscal deficit.
It adds that slowing money supply growth and maintaining positive real interest rates would help ease pressure on the exchange rate and curb inflationary expectations.
It adds that the authorities must bolster RBM’s credibility and prepare for exchange rate unification.
“The authorities should consider developing a clear plan for unifying the exchange rate that includes a preferred regime and price-discovery mechanisms
“This plan should be formulated in collaboration with trusted advisors, and policy changes should be transparently communicated to the financial sector and the public,” it says.
The report adds that implementing support measures will help cushion the impact of unification, such as tightening fiscal policy in the next financial year budget, maintaining a tight monetary policy, expanding social protection for households facing inflation and empowering the Competition and Fair Trading Commission to prevent price-gouging in the wake of the adjustment.
Since 2017, Malawi has maintained a managed exchange rate supported by forex swaps.
As these swaps matured and debt distress increased, a multiple exchange rate regime emerged. Attempts to reunify the rate at its market value through one-off devaluations have failed.
The overvalued official rate undermines export competitiveness and restricts forex access for importers, and fixed rates do not shield the market from price pass-through effects as most imports are purchased at the parallel rate.
The three institutions say that within the first 18 months, authorities must boost export capacity and attract more foreign direct investment and grants.
They argue that the government should consider gradually removing administrative measures that exacerbate market distortions, such as trade bans, remaining forex surrender requirements, price controls, excessive licensing fees for banks and bureaus and restrictions on parallel market access.
In addition, the three institutions argue that prioritising public financial management reforms will help to encourage more on-budget aid channelled through government systems, accelerating the implementation of development partner projects by allowing faster access to committed funds.
“The authorities should continue adjusting prices in line with the Automatic Pricing Mechanism and ensure the remittance of funds to the Roads Fund Authority, the Malawi Rural Electrification Programme and other programmes in line with statutory price changes,” they state.
In its Economic and Fiscal Policy Statement 2026, the Ministry of Finance says government will implement a policy exchange rate regime that is market-determined.
According to the statement, Treasury will continue to pursue a coordinated set of measures aimed at rebuilding foreign exchange reserves and strengthening Malawi’s external competitiveness.
Finance Minister Joseph Mwanamvekha recently insisted that devaluing the local currency is not an option.
“Devaluation is not a panacea. Devaluation without supply will not address the problem,” Mwanamvekha said.
