Malawi

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Malawi

Malawi

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Key Facts

  • Capital: Lilongwe
  • Region: Southern Africa
  • Official languages: English
  • Independence Day: July 06, 1964
  • Area: 118,484 sq km
  • Population (2018): 18.1 million
  • REC membership: COMESA, SADC
  • WTO membership: May 31, 1995
  • GDP (2018): US$ 7.065 billion
  • GNI per capita (2018): US$ 360
  • Currency: Kwacha

Economic overview

Real GDP grew an estimated 5.0% in 2019, up from 4.0% in 2018, despite the effects of cyclone Idai. Growth was supported by continued macroeconomic stability and improved agricultural performance (maize output increased 25.7% in 2018/19).

Annual inflation was estimated at 9.0% in 2019 and projected at 8.4% in 2020, down from 21.7% in 2017. The monetary policy rate eased from 20.6% in 2017 to 13.5% by November 2019. The exchange rate stabilized at 738 Malawian kwacha per dollar in September 2019, up from 732 kwacha per dollar in September 2018. Foreign reserves were equal to 3.7 months of imports in June 2019.

Post-cyclone Idai reconstruction created fiscal pressures. The government, facing subdued revenue of 19.9% of GDP and growing public debt, sought to reduce domestic debt from 30% of GDP in 2018 to 20% in 2019. The 2019 fiscal spending was reduced from 29.5% of GDP to 25.6%. The 2019 deficit was an estimated 5.9% of GDP, and the 2020 deficit is projected at 4.3%, to be financed from external and domestic resources.

The current account deficit was estimated at 16.9% of GDP in 2019, up from 16.2% of GDP in 2018, driven by a decline in tobacco prices. A current account deterioration is projected at 17.4% of GDP in 2020 and 17.8% of GDP in 2021, driven by post-cyclone Idai infrastructure imports. Unemployment is high at 18.5%, aggravated by a mismatch between the demand and supply for skills.

Malawi’s growth was robust in the first half of 2019, supported by improved agricultural performance. GDP growth prospects for the next few years are positive, due to the rebound in agriculture and improved electricity supply from the Zambia-Malawi inter-connector. Growth is projected to rise modestly to 5.2% in 2020 and 5.5% in 2021, up from 5.0% in 2019, supported by prudent policies, improved external financing, favorable terms of trade, and increased investments in connectivity infrastructure along major trade corridors.

Growth will be reinforced by continuing macroeconomic stability. The cautious monetary easing in June 2019 signalled an attempt to stimulate demand. Maintaining that accommodative policy could propel capital flows, increase economic activity, and restore growth, since it supports credit to the private sector.

The government has proposed to strengthen value addition through the Special Economic Zone (SEZ) Bill to regulate exports through a national export strategy. The bill proposes multi-product SEZs for oil seeds, sugar cane, beverage manufacturing, and agroprocessing. Malawi will also prioritize exports of tea, legumes, oil seeds, and minerals.

Climate shocks, fiscal policy slippages, and lower business confidence could, however, hurt the economy. Since 2016, fiscal slippages have exacerbated the fiscal deficit, and the debt-to-GDP ratio rose from 30% to 62% between 2013 and 2019. With public debt rising above the sustainability threshold of 60% of GDP, fiscal space is tight. The plan to reduce the fiscal deficit to 2.5% appears ambitious, as the 2019 cyclone Idai flood recovery costs linger. Risk reduction measures to build resilience to shocks for the 87% of Malawians engaged in agriculture will bolster growth.

Landlocked Malawi’s development relies heavily for external trade on foreign seaports such as Dar es Salaam in Tanzania and Nacala and Beira in Mozambique. Trade is unstable, characterized by laws banning exports, lack of infrastructure, and inadequate diversification and value addition. Tobacco accounts for 50% of exports, vulnerable to price volatility. And the lack of skilled workers makes the labor market dysfunctional, suggesting the need for vocational training and technical education to enhance employability and productivity.

Last updated: April 2020