LILONGWE, November 10, 2016 – While Malawi has made progress in human development in recent years, this progress has been dwarfed by weather-related challenges which have negatively affected the predominantly agrarian economy, according to the World Bank’s latest economic report for the country.
The fourth edition of the Malawi Economic Monitor: Emerging Stronger (MEM), suggests ways that the country could become stronger and be more resilient against climate shocks, as these weather shocks are likely to continue to occur more frequently with climate change.
“It is highly likely that Malawi will continue to face weather shocks on a recurring basis,” said Richard Record, World Bank senior country economist for Malawi, and lead author of the MEM. “Improved economic performance is dependent on Malawi building its level of resilience to enable it to better withstand the impact of both internal and external shocks.”
In 2016, with Malawi facing drought and subsequently poor harvests and an expected decline in agricultural growth for a second consecutive year, the country is expected to record a gross domestic product (GDP) growth rate of 2.5%. The production of maize, the country’s key food crop, fell by 14.7%, following a decline of 30.2% in 2015.
With the decline in maize production, the Malawi Vulnerability Assessment Committee estimates that 6.5 million people will require food assistance. Managing the humanitarian response effectively while continuing with efforts to restore fiscal balances is the double-edged challenge that government needs to address for economic recovery and building resilience, according to the MEM. The extent to which the government succeeds in this endeavor, notes the MEM, will have a major impact on the economic outlook for 2017 and for the medium-term outlook.
Towards a growth recovery
The MEM observes that an economic recovery is possible in 2017, although its achievement would require the implementation of a number of politically challenging reforms. The MEM therefore suggests key steps to lay the foundation for a growth recovery that include the following:
- Policy reforms to reduce distortions and to ensure that agricultural markets function more effectively: The prices for agricultural commodities in Malawi are among the most volatile in the region. In many instances, the impact of climate-induced shocks has been amplified by policy-induced distortions that result in market failure.
- Measures to maintain economic stability and to improve fiscal discipline: Only by breaking the current vicious cycle, characterized by large deficits, over-borrowing and the crowding-out of the private sector, can Malawi effectively control inflation and restore the basic macroeconomic conditions necessary for higher levels of investment and job creation. The Government should also look to implement measures to increase fiscal buffers to enable the budget to better withstand the impact of external shocks.
- Investments to build resilience to mitigate against climate-induced weather shocks and to diversify Malawi’s economy: These investments should include measures to develop agricultural infrastructure and extension services to facilitate a higher level of crop diversification, to improve yields, and to build resilience through the development of irrigation, market information systems and improved farmer organization.
Measures to help the rural poor emerge stronger
Beyond establishing macroeconomic stability, the achievement of higher levels of productivity is essential to improve the welfare of rural households who largely depend on agriculture and are the most vulnerable to weather shocks, according to the report. The MEM further suggests the following policy measures:
- More balanced expenditure on the agricultural sector: Continued reforms to the Farm Input Subsidy Program would help to improve the government’s fiscal position, while also freeing up resources for reallocation to complementary investments that could generate higher returns in terms of improving agricultural productivity.
- Accelerate structural reforms: To achieve higher levels of prosperity in Malawi’s rural areas, broad structural transformation is required, with this transformation including a more rapid rate of orderly urbanization.
- Improve efficiency and effectiveness of safety net programs: The government should extend coverage to a greater number of beneficiaries; improve targeting for greater impact and reduce leakages.
- Accelerate the demographic transition: If Malawi is to achieve significant reductions in its poverty rate and improvements to its level of human development, it needs to implement measures that would facilitate a reduced fertility rate.