The World Bank Thursday released the 16th Malawi Economic Monitor (Mem) which has revealed that Malawi’s macroeconomic crisis is worsening, severely impacting households and the private sector.
The Mem, ‘Planning Beyond the Next Harvest: Advancing Economic Stability and Agricultural Commercialisation’, says after a tepid rebound in 2021, Malawi’s economy entered another slowdown this year.
According to the Mem, the World Bank estimates that gross domestic product (GDP) growth has slowed to 0.9 percent in 2022, a decline from 2.8 percent in 2021.
“This constitutes a per capita GDP contraction of 14 percent given annual average population growth of percent.
“External shocks, and in particular the impacts of the Russia-Ukraine war, as well as a worsening balance of payments crisis caused by sustained fiscal and external imbalances, are at the core of this recent economic slowdown,” the Mem reads.
It notes that due to adverse weather conditions, agriculture became a drag on growth rather than its principal driver, declining by 1 percent relative to 2021.
According to the bank, the late onset of the 2021-22 rainy season followed by multiple tropical storms have led to decreased yields for both smallholders and commercial farmers.
The report says due to prolonged power outages, industry in particular has been suffering from pervasive electricity shortages, growing at just 0.9 percent in 2011, while services growth in 2022 is estimated at 1.8 percent.
It further notes that the worsening balance-of-payments crisis has led to an acute foreign exchange shortage, affecting all those producers that import inputs, and causing shortages of fuel and other essential goods.
Headline inflation, the Mem says, rose to 26.7 percent in October 2022, the highest level since June 2013, adding that the invasion of Ukraine by the Russian Federation in February 2022 and the subsequent further rise in global commodity prices contributed to an increase in domestic prices for fuel, fertilizer, cereals and cooking oil.
New World Bank Country Director for Malawi, Tanzania, Zambia and Zimbabwe, Nathan Belete, said low agriculture productivity of predominantly rainfed smallholder systems, compounded by increasingly frequent climate shocks are the main drivers of persistent food insecurity in Malawi.
“It is currently estimated that 3.8 million people, or one in five Malawians will face crisis-level acute food insecurity during this lean season. New analysis in Mem shows that rising food inflation – currently at 34 percent – will lead to even more people pushed into poverty.
“This highlights the urgency of addressing the challenges affecting the economy, and in particular the agriculture sector,” Belete said.
Finance Minister Sosten Gwengwe said the government remains committed to stabilising the economy and implementing measures to reduce the pressure exerted by various shocks.
Among others, Gwengwe said the government recognizes that the current support to the agriculture sector is neither sustainable nor affordable, adding that that is why the government has announced reforms to increase the efficiency of the AIP by improving targeting and promoting diversification and commercialisation.
“To cushion against the impact of rising domestic prices, the government has temporarily suspended one fuel levy and reduced levels in three other fuel levies. It has also reduced the pump price of petrol in September,” Gwengwe said.