By, JAKOB ENGEL, YUMEKA HIRANO, HAYAAN NUR & YALENGA NYIRENDA:
After a short rebound in 2021, Malawi entered a renewed slump in 2022. Its economy is seriously weakened by a series of external shocks and severe macro-fiscal imbalances that have impacted growth and efforts at poverty reduction.
As the macroeconomic crisis has worsened, the need to move toward greater economic stability has become increasingly urgent.
With just over half of the Malawian population of almost 20 million (2021, World Bank) living in poverty, stalled structural transformation, and high vulnerability to climate change, Malawi’s economic slowdown will compound an already difficult situation for its citizens.
The following seven figures from the World Bank’s new Malawi Economic Monitor (December 2022) highlight the impact of sustained macroeconomic imbalances on the country and suggest how Malawi could stabilise its economy to improve growth.
1. GDP growth is projected to remain low
After its tepid rebound in 2021, GDP growth is projected to slow to 0.9% in 2022, increasing to 2.2% in 2023—still significantly lower than its pre-pandemic trajectory
These growth rates constitute a per-capita contraction in GDP. External shocks and, in particular, the impacts of the war in Ukraine and of two cyclones that have affected agricultural production, together with a balance-of-payments crisis (see 2), are at the core of this. Economic growth is likely to be just a quarter of the sub-Saharan Africa average in 2022 and below the regional growth rate in 2023.
2. Foreign exchange shortages and rising input costs negatively affect the private sector
Malawi’s balance of payment crisis became more acute over the course of 2022, with foreign exchange widely unavailable. This led to still ongoing shortages of imported goods, illustrated by long queues at filling stations and lack of imported medicines in hospitals. Imports necessary for industrial production were also difficult to obtain.
The latest World Bank Business Pulse Survey (BPS) found that two-thirds of the 1,200 small businesses surveyed in October 2022 reported a decrease in sales compared with one year earlier.
A full 72% saw rising input costs and more than three-quarters the unavailability of foreign exchange, as threats to their profitability. Addressing the acute foreign exchange shortage is therefore critical to supporting the private sector.
