The World Bank has recommended what it calls significant shifts on how the economy is run if Malawi is to move towards recovering from shocks that has stifled growth in recent years.
World Bank Senior Country Economist for Malawi Jakob Engel said this on Monday in a response to an emailed questionnaire.
He highlighted incentivising investment and production over consumption, reducing State control over the economy and increasing exports among key steps towards stabilising the economy.
Engel further faulted the government for what he rated as continued slippages on the fiscal space, which he says could affect the recovery process.
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He singled out increases in expenditures in the 2024-25 national budget as a step backwards in the government’s quest to contain fiscal pressure.
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This comes as the K5.98 trillion national budget has a K1.43 trillion deficit, which represents 7.6 percent of Malawi’s gross domestic product.
The government plans to finance the gap through domestic borrowing amounting to K1.28 trillion with about K150 billion to be borrowed from external sources.
“For these reasons, we think the government’s fiscal consolidation agenda has lost some momentum.
“Additionally , financing these deficits contributes to the very high levels of inflation we see, which then puts further pressure on households and businesses and makes it even harder to reduce poverty and stabilise the economy,” Engel said .
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He also said while the country has a sound public finance management legal framework, enforcement remains key.
Commenting on the economic situation, Engel said the situation for the average Malawian remains difficult, especially after another weak harvest.
“This will result in acute food insecurity for millions and many households will be forced to sell off assets, take children out of school or forego medical treatment.
“Addressing this challenge is our most urgent concern. In turn, it will be essential to prioritise, among the many activities in the government appeal launched earlier this month, to identify those that will have the greatest impact in alleviating food insecurity, and the lowest risk of failure,” he said.
Speaking when presenting the national budget, Finance Minister Simplex Chithyola Banda affirmed the government’s commitment to working towards further narrowing the budget deficits.
