Reserve Bank of Malawi (RBM) figures point to a possible rebound in Malawi economy’s growth in real gross domestic product (GDP) terms to 3.8 percent in 2024.
Among other factors, the central bank is premising its projection on a possible Extended Credit Facility (ECF) programme deal between Malawi and the International Monetary Fund (IMF).
This comes as the local economy has largely been volatile and faced with myriad challenges. Malawi has been affected by a series of shocks—both natural and exogenous— including an outbreak of cholera and Cyclone Freddy lately.
These, and other catastrophes, caused significant loss of life and damage to infrastructure, thereby weakening growth prospects.
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For instance, the World Bank projected that Malawi GDP would grow by 1.4 percent in 2023 before picking up to 2.4 percent in 2024.
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The African Development Bank expects Malawi’s real GDP growth of 2.0 percent in 2023 and 3.5 percent in 2024.
The IMF predicted a 2.4 percent GDP growth for Malawi in 2023, as economic growth is set to slow in sub-Saharan Africa.
The IMF’s 2023 growth projection for Malawi is way higher than the 1.6 percent revised GDP growth estimate by the government in the aftermath of Cyclone Freddy from the earlier projected 2.7 percent.
The Economic Intelligence Unit, a research division of the Economist Group, also lowered Malawi’s GDP growth estimate to 0.7 percent in 2023.
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And in its recent Monetary Policy Committee (MPC) report, the central bank conceded that domestic economic recovery had been disrupted by cyclone Freddy, resulting in a modest growth estimate of 1.9 percent in 2023, down from an earlier projection of 2.7 percent.
Downside risks to growth prospects still dominate due to persistent foreign exchange challenges and a high inflationary environment.
However, the central bank says, this notwithstanding, the anticipated resumption of the IMF-supported ECF programme is expected to unlock foreign exchange inflows, which will, in turn, support the importation of raw materials and promote economic activity.
“Therefore, real GDP growth is projected to strengthen to 3.8 percent in 2024,” reads the RBM report.
On inflation trends, the MPC says inflationary pressures had somewhat abated during the third quarter of 2023, resulting in a marginal slowdown in average headline inflation to 28.2 percent from 28.4 percent in the previous quarter.
It says the outcome was explained by developments in non-food inflation which decelerated to an average of 16.4 percent in the third quarter of 2023, from 17.6 percent in the preceding quarter, an outcome which was attributed to a relatively tight monetary policy environment and lower imported inflation.
In contrast, the MPC noted that food inflation edged up to 38.5 percent in the third quarter of 2023, compared to an average of 38.0 percent in the previous quarter.
“The moderation in food prices was partly attributed to maize sales in some selected ADMARC depots. However, upside risks to the inflation outlook include exchange rate movements, increases in crude oil prices and adverse weather conditions,” says the report.
In a recent interview, local economist from Malawi University of Business and Applied Sciences Betchani Tchereni said while the outlook remained mixed, an ECF programme would cushion the country from some of the shocks it has endured.
The IMF Executive Board has set November to determine Malawi’s ECF fate.
The board meeting comes after Malawi reached a Staff Level Agreement with the IMF Mission on September 21.
According to the IMF Board calendar, the IMF executive board will be looking at second review under the Staff Monitored Programme with Executive Board Involvement which the IMF Mission approved in September.
An ECF arrangement brings about financial assistance to countries, like Malawi, with a volatile balance of payments position—a record of all transactions by a country and the rest of the world. It helps mitigate foreign exchange scarcity on the market.
The arrangement is also touted for its “signalling effect” of triggering direct budget support and restoring dornor-confidence.
The IMF-supported programme came to a halt in 2020 when the Tonse- Alliance-led administration requested a new four-year ECF programme ‘that would be better aligned with Malawi’s long-term development strategy, Malawi 2063.’
