World Bank: Malawi Must Act Fast to Avert Prolonged Economic Slide

With real GDP growth projected at just 1.9 percent in 2025 — below population growth — Malawi is facing its fourth consecutive year of declining GDP per capita.

Malawi must urgently stabilize its fragile economy and reverse a decade-long export decline to create jobs for its rapidly growing youth population, the World Bank Group has warned in its latest Malawi Economic Monitor (MEM) titled “Getting Reforms Right.”

After years of high inflation, mounting debt, foreign exchange shortages and falling exports, the report argues that only coordinated and well-sequenced reforms can restore macroeconomic stability and unlock private sector–led job creation.

A Jobs Crisis in the Making

The employment gap is stark.

Each year, around 270,000 young Malawians enter the labour market, yet only about 40,000 formal jobs are created.

With real GDP growth projected at just 1.9 percent in 2025 — below population growth — Malawi is facing its fourth consecutive year of declining GDP per capita.

The World Bank warns that without urgent action, the country risks entrenching poverty and informality.

“Malawi has the talent and the opportunity to turn the tide—if the country moves quickly to stabilize the macroeconomy and clear the bottlenecks that make it hard to produce and export,” said Firas Raad, World Bank Country Manager for Malawi.

Debt, Deficits and Inflation Weigh on Growth

The report paints a picture of macroeconomic fragility:

• Fiscal deficits among the highest in Sub-Saharan Africa

• Public debt near 90 percent of GDP

• Interest payments consuming nearly half of domestic revenues

• Ongoing external debt distress

• Elevated inflation, driven largely by food prices and fiscal pressures

High borrowing costs and debt servicing are crowding out private sector credit, while persistent foreign exchange shortages are constraining business operations and investment.

The MEM stresses that macroeconomic stability is not optional — it is foundational for job creation. Without predictable fiscal policy and reliable access to foreign currency, private firms cannot expand production or hire at scale.

Exports in Sharp Decline

The report’s special focus, “Reversing Malawi’s Export Decline,” highlights a troubling trend: goods exports as a share of GDP have fallen steadily since 2014.

Key findings include:

• A sharp drop in the number of exporting firms

• Increased informality and smuggling

• Continued dominance of tobacco in the export basket

• Reduced diversification in products and markets

High and unpredictable trade costs are cited as a major barrier. Complex licensing procedures can take weeks, non-tariff barriers remain common, border processes are slow, and ad hoc trade bans create uncertainty.

Foreign exchange distortions further discourage investment and expansion.

Untapped Potential in Agro-Processing and Mining

Despite these setbacks, the World Bank identifies significant opportunities in:

• Macadamia processing

• Soybeans and groundnuts

• Emerging mining projects

These sectors could create jobs along entire value chains, from farming and processing to logistics and export.

However, inconsistent policies, infrastructure gaps and unreliable electricity supply limit competitiveness and scale.

Reform Agenda: Stabilize First, Then Accelerate Growth

To stabilize the economy and restore investor confidence, the MEM recommends:

• Strengthening fiscal discipline

• Increasing domestic revenue mobilization

• Reducing inefficient tax exemptions

• Prioritizing productive public spending

• Advancing debt restructuring

• Resolving foreign exchange imbalances

The report also calls for repurposing agricultural subsidies toward more productive investments, deepening fiscal decentralization to improve service delivery, and expanding access to affordable, reliable electricity.

Investment in infrastructure — particularly roads — and skills development aligned with labour market demand are deemed critical to unlocking employment growth.

Trade Reforms Central to Recovery

To reverse export decline, the MEM urges:

• Simplified and digitized import/export licensing

• Modernized border management systems

• Transparent, time-bound trade measures

• Greater policy predictability

Improving trade efficiency would not only boost export earnings and foreign exchange availability, but also expand opportunities for firms to scale operations and hire more workers.

Sequencing Matters

The World Bank emphasizes that reform sequencing will be critical. Quick wins in trade facilitation and foreign exchange management could relieve pressure on firms, while longer-term fiscal and structural reforms anchor stability.

The report concludes that decisive implementation and stronger public–private collaboration could shift Malawi onto a more resilient and inclusive growth trajectory.

If reforms are executed effectively, the country could stabilize inflation, rebuild export competitiveness and generate the private sector dynamism needed to create more and better jobs.