With Malawi’s economic growth recoveringand single digit inflation, the Government has akeyopportunity to rein in fiscal deficits and reducedomestic debt. If it can better control domestic debtlevels, the Government could increasingly move towardscreating the conditions for the privatesector to increaseinvestment, which can drive growth and job creation. Tosupport this, the Government needs to develop a track recordof achieving sustainable fiscal deficits in order to containand reverse the escalating domestic debt burden, to containinterest rates and avoidcrowding out private sectorinvestment, and to increase public investment. Malawi’seconomy is projected to grow by 4.4 percent in 2019, up from3.5 percent in 2018. Agricultural activity rebounded in 2019due to favorable weather conditions, which offset thenegative effects from Tropical Cyclone Idai in parts of thesouthern region of the country. Crop production wasgenerally strong, particularly in the case of maize, withproduction increasing by 25.7 percent. This supportedoverall economic growth, despite a decline in tobaccoproduction. However, the ongoing political impasse, withwidescale demonstrations that have continued since May 2019,has constrained business activity and increased uncertainty,weighing on investment. The Government missed the revisedfiscal deficit target in FY2018/19. The fiscal deficitincreased to 6.5 percent of GDP, higher than the revisedtarget of 5.8 percent. The impact of election-relatedexpenses,increased interest payments and costs associatedwith the disaster response pushed recurrentexpenditurebeyond targeted levels by 1 percent of GDP. This waspartially offset by under-execution of developmentexpenditure, which was not enough to keep the fiscal deficitto 5.8 percent of GDP. Poor revenue performance, which waslower by 0.5 percent of GDP, compounded the problem.
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