The southern African country has been battling foreign-currency shortages that have led to a lack of fuel, medicines and fertilisers. It devalued its currency last year by about 30% to try to alleviate the situation.

Foreign exchange reserves improved towards the end of December 2023 and are expected to continue recovering in the medium term, said Finance Minister Simplex Chithyola Banda.

Large-scale farming and anticipated growth in construction, manufacturing and other sectors will drive economic growth, which is expected to reach 4.8% in 2025, Banda added.

"Our economy is getting back on track, recovering from the economic and climate-related shocks that the country experienced," said Banda.

"However, the country's fiscal position remains challenged by the expenditure pressures that far outpace our revenues."

The budget deficit for the 2024/25 fiscal year starting in April is expected to be 1.43 trillion kwacha ($858 million), which is 7.6% of Malawi's gross domestic product (GDP), compared to 1.36 trillion kwacha or 8.9% of GDP in 2023/24.

The exchange rate adjustment has exacerbated Malawi's debt picture, Banda said, adding that restructuring talks with bilateral and commercial creditors were under way and the government was optimistic they would yield results.

The International Monetary Fund, which approved a loan of about $178 million in November, has said Malawi needs almost $1 billion in debt relief by 2027.

($1 = 1,666.7300 kwacha)

(Reporting by Frank Phiri; Writing by Nellie Peyton; Editing by Alexander Winning and Alexander Smith)

By Frank Phiri