World Bank: Malawi Needs Fiscal Reforms to Restore Stability and Spur Growth

The World Bank report notes that Malawi is at a critical economic juncture, with persistent fiscal imbalances, soaring inflation, and rising public debt undermining development progress.

Malawi can rebuild confidence in its public finances, protect vulnerable populations, and attract private capital to advance the aspirations of Malawi Vision 2063, according to a new World Bank Group Public Finance Review (PFR). The report, titled “Restoring Stability, Rebuilding Trust,” presents a forward-looking assessment of the country’s fiscal landscape and outlines a roadmap for restoring macroeconomic stability.

Malawi Faces Deepening Fiscal Pressures

The World Bank report notes that Malawi is at a critical economic juncture, with persistent fiscal imbalances, soaring inflation, and rising public debt undermining development progress. Between 2022 and 2024, Malawi recorded one of the highest fiscal deficits in Sub-Saharan Africa—averaging 11.9% of GDP—while the public debt level has climbed close to where it stood before the country reached the HIPC completion point in 2006.

These challenges have created a severe macro-fiscal crisis, limiting the government’s ability to finance essential services and development priorities.

Budget Rigidity Limits Development Spending

According to the PFR, Malawi’s budget is heavily constrained by mandatory spending categories. Wages, debt servicing, pensions, gratuities, and statutory transfers absorb almost all domestic revenues. This rigidity leaves minimal fiscal space for investment in infrastructure, social services, and economic development.

Public financial management systems—including investment planning, procurement, and oversight—also face bottlenecks. Delays in fully deploying the Integrated Financial Management Information System (IFMIS) and the e-Government Procurement (e-GP) system continue to hinder transparency and efficiency. Weak project appraisal and selection processes contribute to low-quality public investments, exacerbating fiscal vulnerabilities.

Climate Shocks Add Pressure; Social Sectors Underfunded

Malawi’s high vulnerability to climate-related disasters—such as cyclones, floods, and prolonged dry spells—further strains public finances. Reconstruction needs divert resources away from long-term development.

Meanwhile, critical social sectors such as education, health, and social protection remain underfunded. They rely heavily on external financing, which has declined in recent years, putting service delivery at risk.

Mining Sector Shows Promise but Requires Realistic Expectations

The PFR highlights that Malawi’s mining sector holds significant potential, particularly for energy-transition minerals. Seven prospective mining projects could collectively generate US$200 million to US$500 million annually by the early 2030s. However, actual revenues will depend on production levels, global commodity prices, and the fiscal terms negotiated with investors. The report cautions that mining alone cannot provide an outsized windfall and should complement a broader fiscal reform strategy.

World Bank: Reforms Can Turn Crisis Into Opportunity

“This review lays out a practical roadmap to stabilize public finances fairly, while accelerating inclusive growth. With sustained government leadership and broad stakeholder support, Malawi can turn a difficult moment into a springboard for reform—protecting essential services, strengthening institutions, and crowding in private investment,” said Firas Raad, World Bank Group Country Manager for Malawi.

Key Recommendations for Restoring Stability and Trust

To rebuild fiscal stability, the report calls for a balanced fiscal consolidation strategy—one that improves efficiency while safeguarding essential social and infrastructure spending.

Key proposals include:

Revenue Measures

• Rationalize tax incentives to reduce unnecessary fiscal costs.

• Remove non-essential VAT exemptions to broaden the tax base.

• Accelerate digitalization of tax administration to improve compliance and reduce leakages.

Expenditure and Governance Reforms

• Complete IFMIS optimization to ensure accurate, real-time financial reporting.

• Strengthen procurement systems and streamline project appraisal processes.

• Enhance Parliamentary oversight to boost transparency and accountability.

• Improve debt management capacity to gradually reduce fiscal risks.

The World Bank emphasizes that with decisive action, Malawi can restore macro-fiscal stability, rebuild public trust in institutions, and pave the way for sustained and inclusive growth aligned with the Vision 2063 agenda.