Budget targets could be dead on arrival, act now

Disruptions in the Middle East following the joint US and Israel attacks on Iran 12 days ago should be a cause for worry for several African countries, including Malawi owing to the impact the conflict has on supply chains for strategic commodities such as fuel and fertiliser. The situation could not have been more disturbing for Malawi as it came barely 24 hours after Minister of Finance, Economic Planning and Decentralisation Joseph Mwanamvekha presented the proposed K10. 978 trillion 2026/27 National Budget on February 27 2026 under the theme ‘Driving economic recover y and sustainable growth through impactful reforms and fiscal consolidation’.

In what he described as a “people-centred, pro-poor, developmental and transformative” agenda, the minister said the financial plan seeks to drive Malawi’s economic recovery with focus on four key sectors of agriculture, tourism, mining and manufacturing (ATMM). Mwanamvekha forecasted gross domestic product (GDP) to grow from 2.7 percent in 2025 to 3.8 percent in 2026 and further 4.9 percent in 2027 with the budget itself anchored on a 4.1 percent real GDP growth rate. While promising, the growth rate still falls short of the consistent minimum of six percent required to achieve aspirations in Malawi 2063 (MW2063), the country’s long-term development strategy that seeks to create “an inclusively wealthy and self-reliant industrialised upper-middle-income country by the year 2063, so that we can fund our development needs primarily by ourselves” driven by three key pillars of agricultural productivity and commercialisation, i n d u s t r i a l i s at i o n and urbanisation.

Inflation, the rate of the general rise in prices of goods and services, is another critical variable in the success of the budget targets. In 2025, the inflation rate hovered around 28.5 percent and Mwanamvekha projects it to drop to 15 percent by the end of the 2026/27 fiscal year while the fiscal deficit is projected to reduce from 11.9 percent to nine percent of GDP. Total public debt stock reached K23.9 trillion or 90.9 percent of GDP as of December 2025.

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However, what wa s presented as a promising budget geared to stabilise the economy could be dead on arrival due to external shocks resulting from volatilities in the energy prices that have revealed structural weaknesses in African economies that extend far beyond simple import dependency. Bloomberg Economics, in its analysis earlier this week, stated that only three sub- Saharan African countries would experience current account balance gains if crude prices remain around $85 per barrel, but it hit over $100 per barrel for the first time since 2022, while the rest such as Malawi face deteriorating trade positions. The three countries to gain are Angola, Nigeria and Ghana which are riding on their status as net oil exporters and likely to benefit from higher prices.

The analysis mentions the Democratic Republic of Congo, South Africa and Kenya as among the most vulnerable. I know that from the early days of the Russia- Ukraine conflict that also disrupted global supply chains Malawians have tended to receive news of any link to global economic trends or exogenous shocks with disdain and as a mere excuse by authorities struggling to manage the economy. Perhaps it is an issue to do with packagaing of such messages, but the reality is that when oil import costs go up, there is instant pressure on the current account balances due to excess demand for foreign exchange.

But truth be told, the external shocks or headwinds cannot be wished away. When this happens , central banks, as monetary authorities, grapple with di f f i c u l t choi ces t hat include allowing currency depreciation which can amplify imported inflation, restricting imports, raising interest rates and draining foreign exchange reserves. The reality Mwanamvekha and his team are facing now is that the rising global oil prices could reverse the gains hitherto made in taming the inflation rate and lowering the cost of borrowing with potential renewed inflationary pressure and rate hikes. It is like getting on a treadmill only for the device to accelerate in the opposite direction.

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