Malawi’s donor community has offered guarded approval of the government’s economic reform agenda, even as the country slides deeper into fiscal distress marked by soaring inflation, chronic foreign exchange shortages and shrinking budget space.
German ambassador
The cautious endorsement came in Lilongwe during high-level pre-budget consultations convened by Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha, bringing together senior diplomats and development partners amid growing anxiety over the social and economic cost of adjustment.
Speaking after the closed-door meeting, Dean of the Diplomatic Corps and German Ambassador to Malawi, Ute Koenig, said donors welcomed the opportunity for direct and unusually candid engagement with the new finance minister.
She said the donor community had been encouraged by Mwanamvekha’s early moves in office but urged him to stay the course, warning that Malawi’s recovery would depend heavily on sustained engagement with the International Monetary Fund (IMF) and the World Bank.
According to Koenig, discussions centred on revenue mobilisation, expenditure control and the harsh reality of Malawi’s fiscal arithmetic.
“The minister outlined how little money remains after wages, salaries, pensions and interest payments are settled. The scale of the challenge is stark,” she said.
Koenig added that trust and confidentiality between government and its partners were now critical, particularly as policy choices become increasingly politically and socially sensitive.
She said further consultations had been agreed, with government signalling its intention to deliver what it described as a “transformative budget” anchored on fiscal consolidation and macroeconomic stability.
Fuel pricing under the spotlight
Fuel pricing emerged as a central and contentious issue during the talks, with Koenig praising the recent pump price adjustment as long overdue after years of policy distortions.
She said Malawi had effectively abandoned automatic fuel pricing mechanisms in the past, a move that worsened shortages and entrenched black-market trading.
Since arriving in the country, Koenig said she had repeatedly witnessed long fuel queues, forcing transporters and businesses to pay double or more on the informal market.
“Fuel is now more expensive at the pump, but secure supply at a higher official price is economically preferable to chronic scarcity,” she said.
She added that the adjustment would also help clear arrears in road maintenance funding, particularly as key infrastructure has suffered extensive damage from recent torrential rains.
A sobering economic picture
For his part, Mwanamvekha painted a bleak picture of Malawi’s macroeconomic environment, citing persistent foreign exchange shortages, high inflation, climate-related shocks and deep infrastructure and energy constraints.
As a result, economic growth remains fragile.
Real GDP growth has been revised down to 2.7 percent for 2025, from an earlier projection of 2.8 percent. However, the minister said the medium-term outlook remained cautiously optimistic, with growth projected at 3.8 percent in 2026 and 4.9 percent in 2027, driven by targeted investments under the National Economic Recovery Plan.
Inflation remains the government’s most immediate headache.
Mwanamvekha said annual inflation averaged 32.3 percent in 2024 and is expected to fall to 28.5 percent in 2025 and 20.7 percent in 2026, attributing price pressures mainly to food shortages, fuel constraints and foreign exchange scarcity.
On public finances, he acknowledged that statutory obligations continue to suffocate development spending.
“Wages, salaries, interest payments, pensions and gratuities now account for more than 90 percent of domestic revenue. This leaves almost no fiscal space for discretionary spending,” he said.
Reform with pain
But the reform agenda has not gone unchallenged.
Governance and economic analyst Dr Ben Dzolowere warned that adjustment measures risk deepening hardship for ordinary Malawians already battered by inflation, stagnant wages and rising living costs.
He cautioned that recent tax reforms could place a disproportionate burden on low-income households, potentially undermining public support for the broader reform programme.
Responding, Mwanamvekha conceded that some measures, particularly in taxation, would involve short-term pain but insisted they were unavoidable if Malawi was to stabilise its economy.
He said the government’s central challenge was to strike a delicate balance between fiscal discipline and social protection — a task he described as inevitable given the depth of Malawi’s structural weaknesses.
For now, donors appear willing to back the reform path — but cautiously, and with their eyes firmly fixed on delivery.
