Publication: Malawi Economic Monitor, July 2025: Navigating Uncertainty
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2025-08-15
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2025-08-15
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Malawi’s economy is in a deep and protracted crisis marked by elevated inflation, declining living standards, and high rates of food insecurity. Since 2020, Malawi’s economy has experienced a deep and protracted economic crisis. Economic growth rates have dropped from an average of 4.1 percent (2011-2019) to 2.2 percent since 2020. This economic growth rate is below the population growth rate of 2.6 percent, resulting in declining incomes for the average Malawian. In 2024, economic output growth further slowed to 1.8 percent, influenced by an El-Niño-induced drought and continued foreign exchange shortages. While external shocks like cyclones, droughts, and geopolitical instability have adversely affected Malawi, their impacts were exacerbated by policy shortfalls. Neighboring countries have tended to recover more quickly from the same shocks, but Malawi’s challenges have been compounded by longstanding policies that have contributed to widening fiscal and current account deficits. These include a procyclical fiscal policy stance, an overvalued official exchange rate, unsustainable borrowing practices, increasing trade restrictions, and price controls. Exchange rate distortions have grown, driving parallel market premia to periodically exceed 150 percent. The government’s economic reform program, supported by the International Monetary Fund (IMF) Extended Credit Facility and development partner support, was launched in November 2023 to restore macroeconomic stability. However, program implementation faced numerous challenges and was not able to stabilize the economy, resulting in its automatic termination in May 2025. As Malawians navigate both global and domestic uncertainty, the 21st edition of the Malawi Economic Monitor argues for the importance of taking urgent and targeted actions to stabilize the economy. Malawi’s economy is facing increasing pressure from rising imbalances, shifting global trade and aid dynamics, and the upcoming general elections. It will be important to focus on stabilization, along with a coherent macroeconomic framework that does not further exacerbate a deterioration of fiscal and external balances. There are some bright spots in the economy, especially through mega-projects in the energy and mining sectors that are advancing. For these to help drive growth, sectoral and macro-fiscal reforms will need to move forward to ensure the country makes the most of these opportunities.
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“World Bank. 2025. Malawi Economic Monitor, July 2025: Navigating Uncertainty. © World Bank. http://hdl.handle.net/10986/43597 License: CC BY-NC 3.0 IGO.”
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