The 2025/26 National Budget Faces a Credibility Crisis
As Finance Minister Joseph Mwanamvekha prepares to present the Mid-Year Budget Review Statement in Parliament, economists and governance commentators are sounding alarms about the credibility of the K8.05 trillion 2025/26 National Budget. This fiscal plan, which was initially designed with optimistic assumptions, is now under intense scrutiny as nearly all its foundational projections have failed to materialize within just six months of implementation.
The timing of the mid-year review coincides with a period of economic turbulence for Malawi. Key fiscal targets set by Mwanamvekha’s predecessor, Simplex Chithyola Banda, are no longer viable. The 2025/26 budget, introduced before the September 16 General Election, relied on several positive forecasts: an economic growth rate of 3.4 percent, average inflation of 24 percent, and foreign grants amounting to K1.14 trillion. However, these expectations have been significantly undermined.
According to the Reserve Bank of Malawi (RBM), the country’s growth rate has plummeted to 1.8 percent, while inflation has surged to 28.9 percent. The International Monetary Fund (IMF) has also forecast a nine percent decline in foreign aid inflows, highlighting Malawi’s continued reliance on external financing. These developments have exposed the fragility of the nation’s economic strategy.
RBM data reveals that the budget has already recorded a K1.2 trillion deficit in the first five months of the fiscal year — nearly half of the K2.47 trillion annual deficit projected for the entire year. Analysts warn that this trend signals potential fiscal strain and may force the Treasury to exceed the K2.3 trillion borrowing benchmark outlined in the national budget.
Economic experts argue that the current crisis underscores the flawed assumptions behind the initial budget. Bertha Phiri, Executive Director of the Malawi Economic Justice Network (MEJN), described the budget as “politically inflated and economically unrealistic.” She emphasized that the ongoing trends will deepen the deficit, reduce revenue collection due to lower growth, and push public debt to unsustainable levels.
“This change translates into an additional budget deficit, meaning that revenue generation will be low due to low growth, triggering high public debt levels. On the other hand, budget implementation will either have overruns or significant mid-year reallocations,” Phiri observed.
At the microeconomic level, the impact will be most visible in social sectors such as education, health, and district councils, which are expected to face major funding shortfalls.
Dr. Christopher Mbukwa, an economist from Mzuzu University, echoed similar concerns, stating that the “writing is on the wall” for the 2025/26 budget. He noted that the dual shocks of slow growth and rising inflation have placed the Treasury in a precarious position.
“Reduced growth means less tax revenue, while heightened inflation raises government spending on wages and subsidies. With donor aid also declining, the fiscal deficit will widen, leading to drug shortages, delayed teachers’ salaries, limited fertiliser supplies, and budget cuts on key development projects,” Mbukwa warned.
Milward Tobias, an economic policy analyst, highlighted the budget’s vulnerability to external shocks, particularly due to the lack of a clear exchange rate policy. He explained that as a net importer, Malawi’s inflation is heavily influenced by exchange rate movements and the prices of imports like fuel and fertiliser.
” Without stabilising forex supply, you leave pricing to the black market, which now determines much of the economy,” Tobias said.
Indeed, the informal market rate has been volatile, with a premium of around 150 percent in March 2025, followed by a slight drop to above 100 percent the next month. This reflects deep-seated market distortions.
The details of the current fiscal plan reveal the scale of the challenge ahead. The 2025/26 Budget aimed for a domestic revenue target of K4.44 trillion, with K4.33 trillion expected from taxes and K106.02 billion from other sources. The government also counted on K1.14 trillion in foreign grants, underscoring Malawi’s dependency on aid.
Total expenditure was projected at K8.05 trillion, with K6.04 trillion earmarked for recurrent spending and K2.01 trillion for development projects. Debt interest payments alone were pegged at K2.17 trillion, consuming almost half (49.2%) of all domestic revenue and accounting for 8.4 percent of GDP.
Wages and salaries were projected at K1.53 trillion (5.9% of GDP), including K10 billion for new recruitments and K176 billion for a general salary increment. Pensions and gratuities were budgeted at K170.4 billion to clear arrears and cover monthly obligations.
With inflation eroding purchasing power, donor aid shrinking, and borrowing costs rising, commentators say Mwanamvekha’s mid-year review will not only be about fiscal numbers but also a test of credibility and leadership.
As Bertha Phiri put it, “This is the moment to stop dressing politics as economics. The numbers have caught up with the narrative.”
Tomorrow, when the Finance Minister takes the floor, the question will not simply be what has changed — but what remains believable in Malawi’s grand fiscal story.