The Southern African nation of Malawi is bordered by Mozambique to the south and west, Zambia to the east, and Tanzania to the north. As of 2015, it has an estimated population of 17.2 million. With the support of the International Monetary Fund (IMF) and the World Bank, Malawi has been able to make important economic and structural reforms and sustain its economic growth rates over the last decade. Nevertheless, poverty is still widespread and the economy remains undiversified and vulnerable to external shocks.

Political Context

Malawi continues to enjoy a stable and democratic government. Since the end of the one party regime in 1993, it has organized five peaceful presidential and parliamentary elections, one of which was a tripartite including local government elections. Current president Prof. Arthur Peter Mutharika is in his first five-year term which started in 2014. The next elections are due in 2019.

Economic Overview

Real gross domestic product (GDP) grew by 5.7% in 2014, but slowed down to 2.5% in 2016 after two consecutive years of drought, which has adversely affected the performance of agriculture, which accounts for about a third of the country’s GDP.  Flooding in southern districts, followed by countrywide drought conditions, caused a decline in agricultural production. Maize, the key crop for food security purposes, had a 30.2% year-on-year drop in production. With the decline in maize production, the Malawi Vulnerability Assessment Committee estimates that 6.5 million people will require food assistance.

The major challenge for the government continues to be balancing its efforts to restore fiscal discipline with its efforts to effectively respond to the need to address Malawi’s food security needs. The extent to which the government succeeds in this endeavor will have a major impact on the economic outlook for 2017 and for the medium-term outlook. With persistently large deficits (projected to reach the equivalent of 4.1% of GDP in FY2016/17), Malawi has very limited fiscal space to respond to the crisis. The Government continues to face a number of significant risks, mostly related to a second consecutive year of adverse weather; the threat of yet another climatic shock (La Niña); declining and volatile on-budget ODA flows; persistently high inflation (overall annual rate expected to stand at 22.5%); and weak global demand for Malawi’s agricultural produce.

Social Context

Encouraging progress has been made in terms of human development over recent years. However, poverty and inequality remain stubbornly high in Malawi.  Poverty has been increasing in rural areas where 85% of the population lives, compared to urban areas where it fell significantly from 25 to 17%. A key obstacle to reducing poverty is low agricultural productivity. The majority of the poor remain locked in low productivity subsistence farming. New estimates on poverty numbers are expected in 2017.

Development Challenges

Malawi is currently facing twin pressures arising from two separate issues – vulnerability to climate induced shocks and fiscal management challenges. Both issues would be causing macroeconomic instability on their own, but together the impact is amplified. Climate shocks such as floods and droughts have made food security a recurrent challenge, and have exacerbated energy and water delivery which are adversely affecting private sector investment. Other challenges include addressing a scarcity of skilled human resources, provision of health care, and managing population growth.

 

With thanks to World Bank [source]