IMF Staff Completes 2025 Article IV Mission to Malawi
IMF News, June 4, 2025
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- IMF Staff Completes 2025 Article IV Mission to Malawi
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Bibliographic details
- Published: June 4, 2025
Mission details and purpose
- IMF team led by Justin Tyson visited Malawi from May 22 to June 3 for the 2025 Article IV consultation.
- Press Release No. 25/175.
- Discussions focused on policies to restore macroeconomic stability, and the structural reforms needed to foster strong, inclusive, and durable growth.
- End-of-Mission press releases convey preliminary findings; staff will prepare a report for the IMF's Executive Board, subject to management approval.
Context, macroeconomic outlook, and risks — key findings
- Real GDP growth declined slightly to 1.8 percent in 2024 due to drought affecting agricultural production, and foreign exchange and fuel shortages.
- Over 20 percent of the population is facing high levels of food insecurity, up five percentage points over 2023.
- Headline inflation began easing in late-2024 and reaccelerated in early-2025 in the context of maize prices rising to historical levels, elevated money growth and an increasing official-parallel exchange rate spread.
- The FY2024/25 (April/March) fiscal balance fell short of budget targets and deteriorated relative to the previous year as revenue underperformed and expenditure ceilings were exceeded.
- Current account deficit expanded further to about 22 percent of GDP and gross reserves are critically low, pointing to an overvalued exchange rate.
- Malawi remains in external debt distress and domestic debt is growing.
- Macroeconomic outlook under current policies:
- Real GDP growth: 2.4 percent in 2025, gradually increasing to 3.4 percent over the medium term.
- Inflation: projected to average 29 percent in 2025 and settle at around 14 percent over the medium term.
- Current account deficit: projected to improve to about 17 percent of GDP in 2025 based on lower fuel prices and a rebound in key exports.
- General elections scheduled for September have reinforced political-economy constraints to macroeconomic adjustment.
- After expiry of the ECF arrangement, the authorities are designing a homegrown reform program.
- Risks are tilted to the downside:
- Downside risks: lower-than-anticipated grant inflows and food production, additional global trade tensions, and delayed reforms.
- Upside risk: greater-than-expected mining investment and production.
Fiscal policy — findings and recommendations
- Priority: return to a sustainable fiscal adjustment path to tackle the rising interest bill and create space for domestically-financed investment and pro-poor spending while ameliorating the sovereign-bank nexus.
- Urgent domestic revenue mobilization needed to achieve fiscal sustainability in an equitable way.
- Options: broadening the tax base and tax policy instruments (e.g., reducing exemptions, and personal and corporate income tax reform).
- Improve wage bill efficiency and rebalance expenditures towards human capital and social protection.
- Public financial management improvements welcomed; reforms remain critical for strengthening fiscal governance and building public trust.
- Progress: expanding IFMIS coverage, bank reconciliations, and increasing public investment efficiency.
- Further actions: enhance budget development, execution, and reporting; improve procurement; strengthen SOE oversight.
- Decisive steps needed to restore debt sustainability:
- Authorities have made some progress with bilateral creditors and continue engagement with external commercial creditors.
- Tangible progress on external debt restructuring could pave the way for new concessional inflows.
- Support needed to reduce the cost of domestic borrowing.
Price stability and exchange rate policy — findings and recommendations
- Tighter fiscal and monetary policies would support disinflationary efforts and ease pressure on the exchange rate.
- A combination of more restrictive monetary policy and an urgent fiscal adjustment, including enhanced reporting on budget execution, could:
- Reduce broad money growth.
- Support policy credibility.
- Re-anchor inflation expectations.
- Structural constraints may be contributing to entrenched inflation expectations.
- Recommendation: unify the official and parallel exchange rates at a level reflecting fundamentals (discounting speculative factors) and stabilize the foreign exchange market.
- Rationale: the current regime with a large and volatile spread creates distortions, impedes exports, subsidizes some imports, encourages informality and tax avoidance, discourages FDI and official aid flows, and reduces domestic revenues.
- Ensure consistency between the de facto exchange rate regime, the monetary policy framework and fiscal policy to support sustainable growth.
Financial sector policies — findings and recommendations
- Banking sector is well-capitalized, liquid, and profitable, but significant exposure to government borrowing and net foreign liabilities require continued careful monitoring.
- Monitor banking sector’s credit and foreign exchange risks to preserve financial stability.
- Increased banking sector credit to the private sector would support economic growth.
- Fiscal adjustment would reduce crowding out from public borrowing and support export-oriented investment.
- A lower inflation and interest rate environment would further support credit to businesses.
Structural reforms — findings and recommendations
- Improve the investment climate to attract investment, diversify the economy, and move up the value chain.
- Sustained multi-year prudent fiscal policies and removing price distortions (e.g., re-activating the automatic fuel price mechanism) would bolster policy credibility and strengthen external competitiveness.
- Address key structural impediments to raise productive capacity, reduce inflation and improve self-sustainability under the authorities’ Agriculture, Tourism, Mining and Manufacturing (ATMM) policy umbrella.
- Further strengthen governance measures to support confidence in public service provision.
- Despite reforms including two National Anti-Corruption Strategies, gaps persist.
- Public procurement and SOE operations would benefit from greater transparency and less discretionary decision-making.
Closing
- The IMF mission team thanks the Malawian authorities and all other interlocutors for the candid discussions and their hospitality.
IMF Communications Department, June 4, 2025.