Malawi’s already fragile public finances are under growing strain as rising debt levels, high borrowing costs and weak revenue collection continue to limit the government’s ability to fund development priorities, the World Bank has warned.
In its January 2026 Global Economic Prospects report, the bank says emerging market and developing economies (EMDEs), including Malawi, have seen their fiscal space severely eroded by overlapping shocks over recent years, with debt levels now at historic highs.
Government debt across EMDEs is estimated to have reached nearly 70 percent of Gross Domestic Product (GDP) in 2024, the highest level in more than five decades.
According to the report, for low-income countries such as Malawi, the situation is compounded by a shift away from concessional financing towards more expensive borrowing following a decline in Official Development Assistance.
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This trend has significantly raised debt-servicing costs, crowding out spending on critical areas such as public investment, social protection and climate related programmes.
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“Spending on critical priorities, including public investment and social safety nets, has been constrained by the heightened cost of servicing debt,” the report notes.
The World Bank highlights weak domestic revenue mobilisation as a major structural challenge for EMDEs, with countries like Malawi continuing to lag far behind advanced economies in tax collection.
The report stresses that building tax capacity is essential for restoring sustainable debt dynamics while maintaining public services.
A more severe tax squeeze is already a bone of contention in Malawi, at a time when the private sector and experts alike are calling for the government to review policies described as prohibitive to industry growth.
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The report also points to fiscal policy frameworks, including fiscal rules and medium-term fiscal plans, as important tools for restoring credibility and discipline.
While more than half of EMDEs have adopted at least one fiscal rule, the World Bank notes that uptake remains far lower than in advanced economies.
However, the bank cautions that poorly designed fiscal rules can be counterproductive, especially if they force spending cuts during economic downturns.
In an earlier interview, Economics Association of Malawi president Bertha Bangara Chikadza observed that fiscal management remained constrained by debt service in the just-ended year, with International Monetary Fund figures estimating debt at 88 percent of GDP and the interest bill nearing seven percent of GDP.
“Government made painful adjustments, including reducing the scale of the [Affordable Inputs Programme] and implementing some fuel price adjustments.
“However, fiscal consolidation fell short of targets due to political economy constraints and rising social protection needs from the drought,” Chikadza said.
Ministry of Finance figures indicate that Malawi’s revenue has consistently remained lower than expenditure, averaging around 16 percent of GDP over the 10-year period.
On the other hand, expenditure has been persistently higher than revenue, averaging 22 percent of GDP over the same period, a trend indicating rising reliance on borrowing that affects debt and macroeconomic stability.
To reduce fiscal pressure, the government announced several measures in the 2025-26 Mid-Year Policy Statement aimed at controlling expenditure and improving revenue mobilisation.
