MALAWI’S FRAGILE ECONOMY: Can the country find the footing?

By: YANKHO MALINDI 

A Decade ago, Malawi’s economy showed signs of stability with steady growth and foreign investor interest but today this is another story as the economy is now on a sharky ground marked by forex shortage, soaring inflation, and a growing fiscal deficit

              Photo 1: fuel shortage has become a huge problem affecting many people (credit :Yankho Malindi)

  Many Malawians continue to struggle on a day-to-day basis with long queues for fuel, and other basic necessities such as sugar a situation analysts say signals a crucial need for structural reforms and human centered planning. Just recently a report by the monetary policy committee has shown that food inflation is still one of the major macroeconomic problems Malawi is facing.

A report produced in July by the National Statistical Office indicated that Food inflation which counts for more than half of the country’s basket dropped to 31.6 percent from 44.9 percent as recorded in January while non-food inflation has eased to 20.1 percent from 22 percent in January 2024. But an analysis by Business Review on the cost of living based on Centre for Social Concern (CFSC) data has shown that within with five years , the cost of living has ascended by 317 percent from K197, 980 in June 2020 to K825 250 in June 2025  

      

photo 2: from NSO website: graph shows the inflation rate for the second quarter of the year

                              

 Moses Milanzi, an entrepreneur who was running a videography company expressed his views on how the economic crisis affected his business.

 “I have lost a business due to high cost of living someone like me who was running a small-scale videography entity it has been so hard to maintain customers who would prefer food than spend their hard-earned money on beauty photography” Milanzi laments.

According to Milanzi job hunting has always been a huge challenge for him and other fellow youths stressing that the government can no longer create a new job market to sustain the ever-growing surge of graduates on a daily basis who are job-ready but are unemployable because there are no job openings.   

In an interview with Prisca Sibale who is an economist now working with CIC insurance, she gives her insight on Malawi’s economic situation stating that Malawi is at a critical turning point as inflation remains high and economic growth is sluggish.

“Malawi’s inflation rate remains stubbornly high driven largely by rising food and fuel prices. Maize the nation’s staple has reached record prices, pushing millions closer to food insecurity. The sharp depreciation of the Malawi kwacha in late 2023, intended to address foreign exchange shortages, has made imports more expensive, triggering a ripple effect on everything from transport fares to electricity tariffs” Sibale said.

On currency depreciation and forex shortage, Sibale added that the kwacha has lost significant value against the US dollar, making it more costly for Malawi to import fuel, medicines, and agricultural inputs and Forex shortages have led to periodic fuel queues and constrained industrial production. Export earnings remain concentrated in a few commodities like tobacco, tea, and sugar, making the economy vulnerable to price fluctuations on the global market.

Malawi continues to wrestle with elevated inflation, though there are modest signs of easing. Headline year-on-year inflation dropped from 29.2 percent in April 2025 to 27.7 percent in May, largely driven by slower food price growth as maize prices dipped. However, non-food inflation remains stubbornly high at 20 percent, signaling persistent cost pressures. The Reserve Bank of Malawi has revised its 2025 average inflation forecast upward to 28.5 percent, with markets expecting it to reach 32.4 percent by December, underscoring continued risks.

On 6 August RBM conducted a Monetary Policy Technical forum in Blantyre at Sunbed Mount Sochi where among other things discussed was issues high inflation and the increasing shortage of forex.

RBM director of Financial Market Markets Chakudza Linje presented in her presentation on how average inflation rate have slightly increase in the second quarter of the year from 27.4 to 28.5 percent due to maize price increase and among other factors, this is according to what the monetary policy committee come up in their last meeting in July.

In response to such macroeconomic challenges the government of Malawi has engaged in negotiations with the International Monetary Fund (IMF), resulting in an Extended Credit Facility to help stabilize the economy. While this brings some relief in terms of budget support, IMF-backed reforms such as subsidy restructuring and public sector wage restraint are often politically sensitive and slow to yield benefits for the general population.

Not long ago the IMF decided to suspend the Extended Credit Facility a program which was intended as a four-year macroeconomic support program Malawi. It was automatically terminated on May 14, 2025, after no review was completed within 18 months. Only $35 million of the planned $175 million was disbursed. The ECF was terminated four months away before the 16 September general elections some analysts pointed out that lack of fiscal discipline as one of the major reasons that resulted into the termination of the program.  

A further blow came from a sudden cut in USAID funding by the USA government, which was valued at over $350 million annually and representing more than 13 % of Malawi’s budget. The USAID freeze has crippled health, education, and infrastructure support, heightening the sense of fiscal vulnerability. IMF Extended Credit Facility (ECF), intended as a four-year macroeconomic support program. On the same note many Malawians have lost job opportunities and other tertiary students have also lost some of their scholarships which were under USAID.

As a citizen I see that our economy is not at a good position having projected 5% inflation as the target before 2030 I see that this target is unrealistic with our economy relies much in Agriculture but climate change and low production has been a problem in this sector  however, the ATM-M strategy by the government is giving some hope but there is a need for collective fiscal adjustment policies. In addition, the private sector has a role to produce more exports to cater the trade deficit.

 The 16 September elections will be very important to Malawians knowing where our economy is coming from and where our economy is going, the elections will also play a role in a way that political parties have come out with their manifestos with strategies hoping to redeem the Malawian economy, but this will not be a simple job as a lot has to be done in order to give back life to our country's economic Criss.