World Bank sees 2nd Covid hurting Malawi
The World Bank has said the resurgence of Covid-19 cases and consequent stronger social distancing policies and behavior could depress Malawi’s economic activity, reduce government revenues and raise the need for further health expenditure.
The observation by the Bretton Woods institution comes at a time Malawi has started feeling the impact of the second wave, with the number of cases surging in recent weeks from below 40 to 323 as at Monday.
According to the bank, the second round of Covid-19 could further expand the fiscal deficit, raising the already high debt burden.
“Such risks are compounded by sizable recurrent expenditures and expensive domestic borrowing costs, which leave little fiscal space for development priorities. Aside from risks relating to the pandemic, Malawi’s continued reliance on rainfed agricultural production leaves the country highly vulnerable to climatic shocks, which could affect growth, impair food security and exacerbate poverty” the bank says in its December 2020 Malawi Economic Monitor (Mem).
The bank says the Covid-19 crisis poses considerable challenges to the new administration as it must seek to support to go to the most vulnerable and encourage an economic recovery, but has inherited a substantial domestic debt burden which severely limits its fiscal space.
The bank has suggested both short and medium term policies that the government could follow in mitigating the impact of the pandemic.
“In the short-term, the government has limited fiscal space to act. Yet it should seek to continue with efforts in four areas,” the bank says.
The Mem further proposes that carefully targeted response efforts are needed to support the most vulnerable by expanding Covid-19 emergency cash transfers in affected urban areas, objectively identifying beneficiaries using an abridged version of the social registry.
It further notes that considering Malawi’s susceptibility to compounded shocks this year (both food insecurity and the Covid-19 impact), the government should also consider food insecurity emergency cash transfer responses in both rural and urban areas, building on functioning food markets.
“Efforts are needed to ensure regular monitoring of the trade and market situation in order to address potential blockages in food markets and trade. This will be especially key to avoid food shortages in some markets as the country heads into the lean season.
“Finally, it will need to assess extending the ongoing moratoria on debt service for bank lending, while considering balancing access to credit, particularly for MSMEs, with financial market stability,” the bank says.
In the medium term, the World Bank says the new administration has an opportunity to implement measures to boost economic recovery and resilience, adding that doing so will allow Malawi to return to 5 to 5.5 percent growth, in order to support incomes and job creation.
Among others measures, the bank says the government can strengthen the foundations for macro stability and growth.
It adds that increasing scrutiny of development expenditure is needed, particularly for domestically financed projects, ensuring that projects are scrutinised through a rigorous assessment in order to ensure they are justified by high borrowing costs.
“Strengthening public finance management [PFM] and governance can improve the use of limited public resources. Government efforts to implement transparent and credible financial management practices will be needed to make the best use of limited fiscal funds. This has been heightened by the Covid-19 pandemic, for which the rapid deployment of response funds has exacerbated PFM vulnerabilities,” the bank says.
