World Bank paints gloomy picture

Tom Sangala June 30, 2016

491 2 minutes read

Contrary to expectations that the country’s Gross Domestic Product (GDP) will grow by 5.1 percent in 2016, a latest report by the World Bank has projected Malawi’s GDP to grow by 2.6 percent.

In this year’s budget statement, Minister of Finance Goodall Gondwe, highlighted projections by the International Monetary Fund (IMF), which he said shows that the country’s GDP will grow by 5.1 per cent.

But in its third edition of Malawi Economic Monitor, entitled “Absorbing Shocks and Building Resilience”, launched yesterday, the bank cites a number of reasons for the continued slow economic growth.

“From what was already an adverse 2015, Malawi is expected to record subdued 2016 growth of 2.6 percent. This is due to the weak performance of the agriculture sector and the ongoing widespread food insecurity, exacerbated by a tightened fiscal stance and continued weak business sentiment in the manufacturing and services sectors. Output in the agricultural sector is projected to contract by 2.2 percent during 2016, while industry is projected to grow at 4.2 percent and services at 4.6 percent,” reads part of the report.

The report also observes that lack of comprehensive approach to managing risks continues to result in major economic losses and humanitarian crises.

“Instead of developing such an approach, government has relied on reactive emergency assistance and expensive coping mechanisms. In turn the management of these coping mechanisms has led to disincentives to invest in on-farm risk management.

“In particular, untimely market interventions lead to a high level price volatility, reinforcing farmers’ dependency on subsidised inputs to achieve profitability. In addition, existing trade policies also impose high costs on the agricultural sector,” reads the report.

The report has suggested a number of strategies that can be employed to end what it has described as a vicious cycle and build resilience.

It says government should provide incentives to invest in on-farm risk management measures by limiting market distortions. Some of them are allowing freer trade, redefinition of roles and strengthening coordination between Strategic Grain Reserves, Admarc, Department of Disaster Management Affairs and Malawi Vulnerability Assessment Committee.

The report has also said government should support farmers’ capacity to invest in improved agricultural practices and access to diverse markets and that the government should ensure that there are well-functioning information systems for evidence-based risk management policy.

It says if Malawi continues to exercise fiscal restraint and implement effective responses to food insecurity challenges, a growth recovery is feasible in 2017.

During his budget statement presentation, Gondwe predicted a rebound in the economy.

“Moving forward, Mr Speaker, Sir, as projected by the IMF, the Malawi economy is expected to rebound from the real GDP growth rate of 3.1 percent in 2016 to 5.1 percent in 2016. Although the economy has been depressed by the El Nino weather episode which particularly adversely affected smallholder agricultural production, commercial agriculture has registered an increase,” Gondwe said then.

He added: “Growth in 2016 has also been anchored by a good performance in the services sectors notably, the wholesale and retail trade sector, the information and communication sector, and the financial and insurance services sector.”

During the launch, a panel of experts which included, Deputy Chief Executive Officer of Nasfam, Betty Chinyamunyamu, Programme Team Leader of World Bank, Yutaka Yoshida, and Card Director Charles Jumbe discussed the report.

Chinyamunyamu said more has to be done to in the country’s diversification drive.

“We need to look at other options. There is too much emphasis on maize. Too much focus on Fisp [Farm Input Subsidy Programme] has not led to much growth. We need to look at factors that will lead to growth. There is need to develop commercially-oriented subsistence farming,” she said.