As Finance Minister Simplex Chithyola Banda prepares to present the 2025-26 National Budget on February 28, Malawians are bracing for a financial plan that could determine the country's economic direction in a challenging fiscal environment.
The economic landscape remains fragile, with rising commodity prices, soaring inflation, and declining economic growth. Experts caution that while expectations for recovery are high, the government faces a tough balancing act between controlling expenditure, stimulating production, and managing a growing fiscal deficit.
Economic Realities: A Budget Under Pressure
The country's economic indicators paint a grim picture. Inflation closed 2024 at 32.2 percent, far above the projected 28.9 percent, worsening the cost of living. Growth projections were also off the mark, with the economy expanding by just 1.8 percent instead of the anticipated 3.2 percent.
According to economist Lesley Mkandawire, these realities leave limited fiscal space for bold economic recovery measures.
"The economy is doing badly. Prices of goods are rising rapidly, and it is everyone's expectation that the next budget should bring recovery," Mkandawire said.
Adding to the strain is the shifting aid policy from the United States, which is scaling back financial support. This could force the government to either increase borrowing or reallocate existing resources--both options that come with significant trade-offs.
Fiscal Discipline vs. Spending Pressures
One of the key concerns is Malawi's growing fiscal deficit, exacerbated by overspending on wages and salaries. At the midyear mark, recurrent expenditure surpassed the target by 26.1 percent, forcing the government to cut funding for development projects and social grants.
The World Bank's Malawi Economic Monitor (MEM) highlighted this worrying trend, noting that while overall spending was 14.2 percent below target, crucial sectors such as public sector wages continued to spiral out of control.
"With liquidity constraints in the domestic securities market, the government had to scale down domestically financed projects to accommodate wage bill increases," the report observed.
With 2025 being an election year, the temptation for excessive government spending is high. Historically, election years come with increased recurrent expenditure, which could further strain an already fragile fiscal position.
Production-Focused Budget: A Path to Recovery?
Given the economic turmoil, experts argue that Malawi's next budget must prioritize production over consumption. Economics Association of Malawi President Bertha Bangala Chikadza emphasizes that investment in productive sectors is the only way to spur long-term economic recovery.
"The budget should be in line with MIP-1. We need production, so productive sectors need serious investments," she said.
This aligns with calls from National Planning Commission Director General Thomas Munthali, who argues that sustainable revenue generation--not reliance on borrowing--is the key to economic stability.
"If we are relying on borrowing and resources from external partners, it is not going to work. It's high time we developed internal capacity for revenue generation and mobilization for sustainable development," Munthali said.
What to Expect in the Budget
Finance Minister Simplex Chithyola Banda has hinted at efforts to cut the deficit while increasing production-related spending. However, how the government plans to achieve this without making painful expenditure cuts remains unclear.
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Key aspects to watch in the upcoming budget include:
Deficit Reduction Measures - Will the government rein in its spending appetite, especially in recurrent expenditure?
Revenue Generation Strategies - With foreign aid shrinking, will tax reforms be introduced to boost domestic revenue?
Production Sector Investments - Will the budget prioritize agriculture, manufacturing, and trade to stimulate growth?
Social Protection and Development Funding - Can the government balance fiscal consolidation with critical development spending?
With the country's economic future hanging in the balance, the 2025-26 budget will be a defining moment in Malawi's quest for economic stability. The challenge for the Finance Minister will be to navigate the competing demands of fiscal prudence and economic stimulation in a way that delivers tangible benefits to Malawians.
