By Chisomo Phiri
BLANTYRE (MaraviPost)-In this article, we share how economy is progressing in Malawi as shared by the World Bank economic experts. Are we making a progress in stabilizing our economy?. The article puts much focus on the country’s political context in relation to economy, the economic overview, the country overview and the development challenges hindering the Malawi economy to go on top or be stabilized.
Located in Southern Africa, Malawi is landlocked, sharing its borders with Mozambique, Zambia and Tanzania. The country’s estimated population of 18.6 million (2019), which is expected to double by 2038.
Malawi remains one of the poorest countries in the world despite making significant economic and structural reforms to sustain economic growth.
The economy is heavily dependent on agriculture, employing nearly 80% of the population, and it is vulnerable to external shocks, particularly climatic shocks.
The Malawi Growth and Development Strategy (MGDS), a series of five-year plans, guides the country’s development.
The current MGDS III, Building a Productive, Competitive and Resilient Nation, will run through 2022 and focuses on education, energy, agriculture, health and tourism.
In January 2021, government launched the Malawi Vision 2063 that aims to transform Malawi into a wealthy and self-reliant industrialized upper middle-income country.
Malawi is generally peaceful country and has had stable governments since independence in 1964. One-party rule ended in 1993, since then, multi-party presidential and parliamentary elections have been held every five years.
Malawi’s sixth tripartite elections were conducted in May 2019. The presidential results were nullified in February 2020 by the Constitutional Court. Fresh presidential elections were held on June 23, 2020, in which Lazarus Chakwera of the Malawi Congress Party (MCP) and Saulos Chilima of the UTM Party were elected as president and vice president respectively after getting 58.6% of the votes.
They won against Peter Mutharika of the Democratic Progressive Party (DPP) and United Democratic Front (UDF) coalition, that received 39.4% of the votes. Chakwera and Chilima lead a coalition of nine political parties known as Tonse Alliance.
Malawi’s economy has been heavily affected by the COVID-19 pandemic, though there have been signs of recovery.
The fourth wave of COVID-19, starting in December 2021, had less severe economic consequences than previous ones. Favorable weather and agricultural input subsidies contributed to a one-time jump in the maize harvest. Tobacco production also increased, and the economic growth rose to 2.4 percent in 2021 from 0.8 percent in 2020.
However, growth is projected to be subdued in 2022 due to unfavorable weather conditions, the impact of several tropical storms, which have damaged farmland and destroyed key infrastructure.
Headline inflation picked up to 12.1 percent in January 2022.
Food inflation reached 14.2 percent, largely due to an increase in maize prices. Non-food inflation edged up to 9.6 percent, driven mainly by rising global commodities and the upward adjustment in domestic fuel pump prices.
According to Reserve Bank of Malawi (RBM), local currency Kwacha exchange rate has gradually depreciated by about 6 percent from January 2021 to January 2022.
RBM has supported Kwacha stability through substantial foreign exchange swaps. Gross reserves have declined to 1.6 months import cover as of January 2022 and net reserves have been negative since February 2021.
Fiscal pressure from the pandemic and government expansionary policies, including the Affordable Input Program (AIP), and weak revenue performance contributed to the fiscal deficit widening to 9.1 percent of GDP in FY21/22.
Expenditure is expected to reach the highest level (25 percent of GDP) due to high levels of expenditure on wages, interest payments, and fertilizer subsidies. Development spending has also been strong, driven by COVID-19 response programs, and irrigation and water projects.
Debt vulnerabilities have significantly increased in recent years. The December 2021 Debt Sustainability Analysis indicates that that Malawi’s external and public debt are both at high risk of debt distress and the debt is unsustainable.
Rising domestic financing and borrowing from regional development banks on a non-concessional basis have significantly increased Malawi’s public debt from 32 percent in 2013 to 55 percent of GDP in 2020.
This is increasingly reducing fiscal space for development spending and risks crowding out private sector investment.
The increase in agriculture yields has contributed to stronger employment in rural areas, while urban employment has only shown a slower recovery from the pandemic.
Despite record harvests, food insecurity continues to be at a high level. The number of Malawians facing high-level acute food insecurity decreased from an estimated 1.7 million in September 2020 to a still high 1.1 million in September 2021 (over 5 percent of the population).
The national poverty rate has slightly declined from 51.5% in 2015/16 to 50.7% in 2019/20. Poverty in Malawi is driven by low productivity in the agriculture sector, limited opportunities in non-farm activities, volatile economic growth, rapid population growth, and limited coverage of safety net programs and targeting challenges.
Malawi continues to rely on subsistence, rain-fed agriculture, which limits its growth potential, increases its susceptibility to weather shocks, and creates food insecurity.
Trade policies and a business environment continue to impede investment and commercialization, as well as erratic electricity supply that limits value addition and slows economic diversification.
Public investment has been low, offset by large and increasing subsidies to maize production. Weak fiscal management and economic policies have contributed to recurring and increasing fiscal deficits, which have been largely funded by high-cost domestic borrowing and resulted in a surge in public debt.
The World Bank in Malawi aims to support Malawi’s efforts toward more diversified, competitive, shock-resilient socio-economic growth.