Malawi implements strategy to replace declining donor aid with domestic revenue

Malawi is facing a significant fiscal transition as international donors, including the World Bank and the European Union, prepare to reduce support for social protection programmes by more than half. Currently, donor contributions fund over 95 percent of flagship initiatives such as school meals, public-works schemes, and cash transfers.

To address this gap, the Malawi Sustainable Financing Strategy for Social Protection proposes increasing domestic revenue. Key measures include expanding the VAT base, restructuring fuel levies, improving pension compliance, and tapping into mining royalties, which could eventually yield up to $100 million annually. Additionally, the government plans to redirect approximately K23.1 billion from the Farm Input Subsidy Programme by 2027.

The Malawi Revenue Authority (MRA) is tasked with underwriting essential services, including salaries for healthcare workers, teachers, and security forces. While the strategy aims to create predictable financing to lower investment risks, economists have cautioned that measures like VAT and fuel levy changes may increase living costs for households in the short term.