Malawi’s economy has had a slow recovery from the shock caused by the COVID-19 pandemic. Real GDP growth is projected to decrease from an annual average of 2.9% for 2019 to 2021, to 2.7% in 2022. Inflation is projected to increase from an annual average of 9.1% for 2019 to 2021, to 10.7% in 2022. The elevated inflation is caused by the sanctions against Russia which have increased the price of crucial imports. In the medium-term period from 2023 to 2025, real GDP growth is projected to increase to an annual average of 5.1%. Meanwhile, inflation is projected to decrease to an average of 6.0% over the medium-term from 2023 to 2025.
The Government of Malawi’s debt has been steadily increasing since 2020. Malawi’s gross public debt is projected to increase from an annual average of 54.5% of GDP for 2019 to 2021, to 66.9% of GDP in 2022. The increase in public debt is largely due to the Government of Malawi implementing fiscal expansion to support the economic recovery from the shock caused by the global lockdown response to the COVID-19 pandemic and procyclical fiscal expansion as the economy recovers. The fiscal deficit is projected to widen from an annual average of -7.1% of GDP for 2019 to 2021, to -7.8% in 2022. This shows the procyclical fiscal stance taken by the government as spending and further borrowing outpace revenue growth. In the medium-term period from 2023 to 2025, the fiscal deficit is projected to narrow to an annual average of -7.0% of GDP. Therefore, public debt is projected to increase to an average of 73.6% of GDP over the medium-term from 2023 to 2025.
Malawi’s external sector was severely affected by the COVID-19 pandemic in 2020 and the sector has continued deteriorating. Malawi’s current account deficit is projected to widen from an annual average of -USD 1.6 billion (approx. -13.6% of GDP) for 2019 to 2021, to -USD 2.1 billion (approx. -17.3% of GDP) in 2022. In the medium-term period from 2023 to 2025, the current account deficit is projected to narrow to an annual average of -USD 1.5 billion (approx. -12.8% of GDP). This illustrates a continued deterioration in the current account balance despite the current rebound in commodity prices which is primarily driven by the impact of sanctions against Russia. Therefore, due to the reliance on raw agricultural exports (tobacco, tea, sugar and oil seeds), Malawi authorities cannot take advantage of the current reprieve and invest in further diversification of the country’s exports. In addition, this deterioration in the external sector will exert pressure on the balance of payments and ultimately lead to further deterioration of the MWK.
Malawi is scheduled to hold its presidential elections in 2025 and the election campaigning cycle is still a long way ahead. Incumbent President H.E. Lazarus McCarthy Chakwera will most likely be vying for a second term in office using his anti-corruption rhetoric. The current political climate remains relatively calm despite pressures to hold the executive leadership accountable. President H.E. Lazarus McCarthy Chakwera dissolved his cabinet in on 24 January 2022 due to corruption and reaffirmed his commitment to fight lawlessness by public officials. As incumbent Chairperson of SADC and a member of the SADC Troika, President Chakwera will also seek to play a more meaningful role in resolving security challenges in Mozambique.