On 28 February 2025, the Minister of Finance presented the 2025/26 budget policy statement to Parliament. The headline numbers are significant: total expenditure of MK 8.05 trillion against revenue and grants of MK 5.58 trillion, producing a fiscal deficit of MK 2.47 trillion — equivalent to 9.5% of GDP.
What the budget says
Total revenue and grants represent 21.5% of GDP. Total expenditure at 31.1% of GDP means the government plans to spend roughly half again as much as it collects. The deficit is to be financed through a combination of domestic borrowing and external sources.
The budget continues to identify agriculture, mining, and tourism as priority growth sectors. Infrastructure investment — particularly roads and energy — is also a stated priority, reflecting the government’s recognition that physical infrastructure constraints are among the primary barriers to private investment.
Why the deficit matters for private sector actors
A large fiscal deficit in a country with constrained forex reserves and limited domestic capital markets has knock-on effects that matter for any company operating or planning to operate in Malawi:
Domestic borrowing crowds out private credit. When the government borrows heavily from local banks and capital markets to finance its deficit, lending rates for the private sector stay elevated. Commercial rates remain well above 30% annually — making local debt financing prohibitively expensive for most businesses.
Import prioritisation. With forex scarce, the government retains influence over import allocation. Companies that rely on imported inputs or equipment can face delays that are not fully predictable.
Public procurement as opportunity. The flip side of high government spending is a large procurement budget. Companies offering goods or services to the public sector — in health, infrastructure, agriculture, or education — will find an active buyer. Navigating public procurement in Malawi requires specific knowledge of the processes and relationships involved.
Currency pressure. Deficit financing through money creation contributes to inflation and MWK pressure. The 2025 inflation forecast of 27.3% reflects this dynamic.
The broader picture
The 9.5% deficit is large but not unusual for Malawi in recent years. The government is operating under genuine constraints — a narrow tax base, high debt service costs, and a population with significant humanitarian needs. The budget is a reflection of those constraints as much as it is a policy choice.
For investment planning purposes, the key takeaway is that the Malawian state is not a passive backdrop to business activity — it is an active participant in the economy, with limited fiscal space and specific priorities that shape the operating environment.
Sources: Malawi 2025/26 Budget Policy Statement, Bridgepath Capital Monthly Economic Report March 2025.