IMF Press Release number 25/175 published on its official website page in Washington, DC on Wednesday, 4th June, 2025 states that an International Monetary Fund (IMF) team led by Justin Tyson visited Malawi from May 22 to June 3 to hold meetings with the Malawian authorities and other counterparts from the public and private sectors and civil society for the 2025 Article IV consultation. Discussions focused on policies to restore macroeconomic stability, and the structural reforms needed to foster strong, inclusive, and durable growth. Below is the brief report of the mission to Malawi by IMF Staff which has ceen completed in 2025. Context, Macroeconomic Outlook, and Risks The Malawian economy has been buffeted by several shocks. Real GDP growth declined slightly to 1.8 percent in 2024 as a drought affected agricultural production, while foreign exchange and fuel shortages dampened economic activity. 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. Fiscal and monetary policy has remained too accommodative. 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. Persistent and elevated domestic fiscal financing has fueled money growth and inflation, which in turn exerts pressure on the exchange rate. Monetary policy did not tighten sufficiently in the context of elevated government domestic borrowing. The broader reform momentum has been slowing. Consequently, domestic, and external imbalances worsened. The current account deficit expanded further to about 22 percent of GDP and gross reserves are critically low, pointing to an overvalued exchange rate. The official-parallel spread is wide and may reflect other factors beyond fundamentals. Malawi remains in external debt distress and domestic debt is growing. The macroeconomic outlook is subdued and dependent on the agricultural sector output and foreign grant support. Under current policies, the mission expects real GDP growth to be 2.4 percent in 2025 and gradually increase to 3.4 percent over the medium term. Inflation is projected to average 29 percent in 2025 and settle at around 14 percent over the medium term. The current account deficit is 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 the expiry of the ECF arrangement, the Malawian authorities are designing a homegrown reform program. Risks are tilted to the downside. Lower-than-anticipated grant inflows and food production, additional global trade tensions, and delayed reforms could deepen macroeconomic instability. Greater-than-expected mining investment and production constitute an upside risk. Fiscal Policy Returning to a sustainable fiscal adjustment path is a priority. Tackling the rising interest bill will create space for domestically-financed investment and pro-poor spending, while also ameliorating the sovereign-bank nexus. Domestic revenue mobilization is urgently needed to achieve fiscal sustainability in an equitable way. This could be achieved through a combination of broadening the tax base and tax policy instruments (e.g., reducing exemptions, and personal and corporate income tax reform). Improving wage bill efficiency and rebalancing expenditures towards human capital and social protection could support these efforts. Staff welcomes public financial management improvements, which remain critical for strengthening fiscal governance and building public trust. The authorities have made progress in expanding the coverage of the Integrated Financial Management and Information System (IFMIS), bank reconciliations, and increasing the efficiency of public investment. Reform efforts should continue to, inter alia, enhance budget development, execution, and reporting, improve the procurement system, and strengthen State Owned Enterprises (SOE) oversight. Decisive steps are needed to restore debt sustainability. The authorities have achieved some progress with their bilateral creditors and continue to engage with their external commercial creditors to ensure that external debt is sustainable. Tangible progress on external debt restructuring could pave the way for new concessional inflows. This should be supported by steps to reduce the cost of domestic borrowing. Price Stability and Exchange Rate Policy Tighter fiscal and monetary policies would support disinflationary efforts and ease pressure on the exchange rate. High inflation hurts the economy in general, but especially the poorest and most vulnerable. 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 and re-anchor inflation expectations. Structural constraints may also be contributing to entrenched inflation expectations. A unified and market clearing exchange rate is critical to reducing imbalances and supporting the authorities’ growth objectives. The current regime with a large and volatile spread between the parallel and official rate creates distortions, impedes exports, subsidizes some imports, and encourages informality and tax avoidance. Foreign direct investments and official aid flows are discouraged, and domestic revenues reduced. Eliminating these imbalances requires unifying the official and parallel exchange rates, at a level reflecting fundamentals and discounting speculative factors, and stabilizing the foreign exchange market. Consistency between the de facto exchange rate regime, the monetary policy framework and fiscal policy are needed to ensure sustainable growth. Financial Sector Policies The banking sector’s credit and foreign exchange risks should be monitored to preserve financial stability. While the sector is well-capitalized, liquid, and profitable, its significant exposure to government borrowing and the net foreign liabilities position within the banking sector require continued careful monitoring. Increased banking sector credit to the private sector would support economic growth. Fiscal adjustment would reduce crowding out of private sector due to public borrowing and support export-oriented investment. In addition, a lower inflation and interest rate environment would further support credit to businesses. Structural Reforms Improving the investment climate would help 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. Addressing key structural impediments to growth would durably support efforts to raise productive capacity, reduce inflation and improve self-sustainability, as envisaged under the authorities’ Agriculture, Tourism, Mining and Manufacturing (ATMM) policy umbrella. Further strengthening governance measures will support confidence in public service provision. Despite government reform efforts, including the two National Anti-Corruption Strategies, gaps persist. For example, the public procurement process and SOE operations would benefit from greater transparency and less discretionary decision-making. The IMF mission team thanks the Malawian authorities and all other interlocutors for the candid discussions and their hospitality. follow the link provided IMF Staff Completes 2025 Article IV Mission to Malawi

On 3 June 2025, Illovo officials hosted the Honorable Minister of Trade and Industry Vitumbiko Mumba and his entourage at the Nchalo Estate in Chikwawa District. The visit provided an opportunity to showcase their ongoing efforts to stabilize sugar supply on the domestic market and ensure consistent availability of the commodity for Malawian consumers. From field to factory, the Minister toured key operational areas and engaged with the Illovo team on the ground to better understand the production processes, challenges, and strategic interventions aimed at strengthening the local sugar industry. At Illovo Sugar Malawi, they remain committed to working closely with the government and stakeholders to grow the local economy, and deliver value for the country. Meanwhile sugar scarcity hits the old Zomba capital city as the local people line up to buy one packet of sugar at Chipiku shops.

Five years ago, Malawi recorded the highest forex import cover of 6 months. This resulted in abundant forex availability for procurement of medical, transport, and plant machinery. Today, we are running less than a month’s cover, and one has to be on the que for months and months to access the rationed forex. The sugar industry, particularly in developing economies, heavily depends on imported machinery and spare parts for continuous production and maintenance. A shortage of foreign exchange (forex) can severely impact the procurement of these essential components. This paper explores the multifaceted effects of forex shortages on the operational efficiency, costs, and sustainability of sugar industry production plants. Delayed Procurement of Spare Parts; The inability to access sufficient forex restricts the timely payment to international suppliers. This results in shipping delays and extended lead times, which directly impact plant operations. As a result, due to the low production of that particular product, there will be less supply, and the high demand will spike the prices. Customs and Clearance Delays; Even when spare parts arrive in the destination country, the lack of forex to pay for import duties and taxes can stall customs clearance, further delaying availability. Increased Production Downtime Delays; Delays in receiving critical spare parts lead to prolonged equipment breakdowns. Consequently, production processes are halted, reducing overall plant uptime and efficiency. Higher Operational Costs Forex shortages; Often drive companies to procure spares through local intermediaries or black markets at inflated prices. Emergency procurement due to unexpected breakdowns adds to the financial burden. Reduced Production Capacity; Without timely maintenance and replacement of worn-out parts, plants may operate below optimal capacity. In seasonal industries like sugar, this can result in missed harvesting and processing windows. Inefficient Inventory Management; To mitigate the risk of procurement delays, companies may overstock critical spare parts, tying up capital in inventory. Over time, these parts may become obsolete, leading to wastage. Inconsistent or delayed payments due to forex constraints; This damages relationships with foreign suppliers. Suppliers may reduce credit terms or stop supplying altogether. Limited Access to New Technology; Forex shortages can prevent the import of newer, more efficient technologies. This leads to prolonged reliance on outdated equipment with higher maintenance needs. The shortage of foreign exchange critically has hampered the procurement of spare parts in the sugar industry and others in Malawi, affecting not only day-to-day operations but also long-term productivity and competitiveness. Strategic interventions, such as government forex allocation policies, improved local manufacturing capabilities, and supplier diversification, are essential to mitigate these effects. This paper recommends establishing strategic partnerships with local or regional suppliers. Advocate for government policies that prioritize forex allocation for essential industries. Invest in predictive maintenance and inventory optimization technologies. Explore local manufacturing or refurbishment options for common spare parts.

Minister of Local Government Unity and Culture Richard Chimwendo Banda has challenged local government authorities to focus on their primary duty of serving the communities rather than allowing personal and partisan interests to overshadow governance and economic growth as government continues to pump in billions of kwachas in Assemblies with an aim of transforming the lives of poor Malawians. He was speaking on Thursday, May 22, 2025 at Sunbird Nkopola, in Mangochi District where he is a Guest of Honour at this year’s 19th Annual Assembly of Malawi Local Government Association ( MALGA). In his remarks, the Minister said President Dr Lazarus Chakwera is committed to transform the lives of Malawians by empowering city authorities with resources and is committed to devolving the powers to Local Government Association (LGA’s). “As government is committed to providing financial and administrative autonomy for LGA’s, let us also remember the people we serve that they expect quality services delivery and accountability to ensure efficient resource utilization from us. The leadership of this nation has depoliticize “Capital Hill Powers” and empower LGA to function independently with an aim of providing effectiveness and efficiency in running the Assemblies. Decentralization must not be a mere policy on paper but a practical tool for socioeconomic development,’ said Chimwendo who is also the ruling Malawi Congress Party-MCP Secretary General. He assured the delegates that government will continue to pump resources in the Assemblies as are the foundation of Malawi’s governance structure. MALGA Executive Director, Hadrod Zeru Mkandawire said the AGA plays a critical role in shaping national policy and best practices. Meanwhile, Blantyre City has been named as the cleanest in Malawi This is the 3rd time in a roll beating the capital Lilongwe and other cities. The Assembly has also named Neno as the most improved Council in operations and implementation of government projects. This year’s AGA theme is : Reflecting on the Recent Past and Taking Stock of the Status of Decentralization and Local Government in Malawi – Looking to the Future and Renewed Hope.