Malawi’s Fragile Recovery Faces Jobs Test; Debt and State Firms Strain Economy

Real GDP growth is projected at 2.8% in 2027, below the pace needed to meaningfully raise incomes and create enough better-paying jobs.

For families struggling with food costs and young people searching for dependable work, Malawi's modest economic adjustment is bringing little relief. The World Bank's 23rd Malawi Economic Monitor: Building Stability to Unlock Growth finds that external shocks, economic imbalances and structural weaknesses continue to hold back investment, job creation and poverty reduction. Real GDP growth is projected at 2.8% in 2027, below the pace needed to meaningfully raise incomes and create enough better-paying jobs.

Household Pressures Persist Despite Modest Progress

Recent household surveys show improvements in literacy and educational attainment alongside rising food poverty and widening inequality. Many workers, particularly young people, depend on casual labour, reflecting limited opportunities for secure employment. Businesses face unreliable electricity, weak domestic supply chains, foreign exchange shortages and an unpredictable operating environment, restricting productivity, investment and the development of a broader range of exports.

Agriculture remains central to livelihoods and the economy, but weather variability, climate shocks, limited access to inputs and weaknesses in major export value chains prevent it from reaching its potential. Food security remains fragile and increasingly dependent on imports. Inflation has moderated somewhat but stays elevated, with food prices squeezing household budgets and higher fuel and electricity costs, exchange rate pressures and wider economic imbalances driving increases in non-food prices.

Government efforts to control spending, reform taxes and strengthen revenue administration helped narrow the fiscal deficit to 8.8% of GDP in FY2025/26. Large interest payments still absorb substantial revenue, leaving less for productive investment and social spending. Imports of fuel and fertiliser are outpacing export growth, widening the trade deficit, and official foreign exchange reserves cover less than one month of imports. Distortions in the foreign exchange market weaken export competitiveness and restrict access to essential imported goods.

Four Reform Priorities for Growth and Jobs

The government's National Economic Recovery Plan provides a framework built around coordination and measurable results. The report identifies an IMF-supported programme as a possible way to strengthen policy credibility, reinforce fiscal discipline and unlock additional concessional financing. Restoring stability requires stronger spending discipline, higher domestic revenue, debt restructuring, more efficient public institutions and decisive action on foreign exchange market distortions.

Creating room for private businesses to grow forms the second priority, covering stronger export incentives, easier trade procedures, predictable policies, land reforms and conditions that encourage investment in sectors such as mining. Better service delivery and resilience make up the third, with stronger social protection, improved local government financing and more transparent fiscal transfers. The fourth centres on infrastructure: reliable electricity, faster energy investment, access to regional power markets and more efficient transport services.

State-Owned Firms Need Stronger Oversight

The report's special topic, "Reforming State-Owned Enterprises, SOEs for Better Services," examines organisations that supply electricity, water, agricultural services and other essential public goods. Many remain financially fragile despite substantial asset growth, recording losses, weak cash flows, declining dividend contributions and difficulty servicing debt. Their dependence on government transfers, subsidies and guarantees places further pressure on public finances and undermines reliable service delivery.

Hidden risks arise from unpaid obligations, loan guarantees, policy-related activities conducted outside the government budget and other liabilities that could eventually fall on taxpayers. Financial distress can spread between public entities before reaching central government. Political interference, fragmented oversight, weak accountability and limited transparency contribute to repeated bailouts and deteriorating services; recent improvements in reporting and risk monitoring have not been implemented consistently.

A phased reform programme should begin with the highest-risk enterprises, according to the Monitor, strengthening governance and appointing skilled, independent boards. Greater transparency, stronger revenue collection, tariffs that reflect service costs and better debt management are also priorities. These changes would address the financial weaknesses that restrict essential services and repeatedly draw public resources away from other development needs.