Overview

Political Context

Current President Professor Arthur Peter Mutharika of the Democratic Progressive Party (DPP) was elected Malawi’s 5th President in May 2014 under a multiparty democracy system, and took the country to its 50th independence anniversary celebrations in July 2014. Both political and civilian discourse on the half century of independence has centered on the high levels of poverty, still above 50 percent of the population, with one quarter in extreme poverty. Civil society and the media are relatively free in Malawi to discuss both political and economic developments in the country, with the World Press Freedom Index showing Malawi improving to position 58 in 2015 from 73 in 2014.

Mutharika has put in place a 20-member cabinet including himself and the Vice President, which is championing home grown public sector reforms (PSRs). The political will surrounding the reforms is seen as offering an opportunity for real change if well implemented. The PSRs were launched in February 2015 by the President, and the Vice President oversees the reform process. At the launch, eight Ministers signed performance contracts with the President making commitments to fulfil specific reforms by December 2015. The Ministries are Finance, Local Government, Education, Energy and Mining, Health, Information, Transport, and Home Affairs.

Recent Economic Developments

Malawi’s GDP growth rate remained stable in 2014 estimated at 5.7 percent, but projected to slow down to 5.1 percent in 2015.  In 2014 growth was driven by expansion in the agricultural, information and communication, and wholesale and retail trade sectors, but the pace is expected to slow down in 2015 mainly due to adverse weather which is likely to affect agricultural production and subsequently manufacturing. While the floods that Malawi experienced in January 2015 have a significant human cost, the expected impact on GDP growth is muted, estimated at 0.6 percent. Downside risks to growth however remain including a continued high rate of inflation averaging 23.8 per cent in 2014, high interest rates above 40 per cent, and a weak fiscal environment.

The fiscal position is under pressure with an estimated deficit of 5.9 per cent of GDP during the 2014/15 fiscal year, compounded by the loss of budget support from donors. In the wake of the external financing shortfalls, recourse to domestic financing has increased consequently driving up public debt which stood at an estimated USD 2.59 billion (equivalent to 69.6 percent of GDP) in 2014. Annual debt service costs are now at a value equivalent to 5.3 per cent of GDP.

For details and information see the March 2015 Malawi Economic Monitor.

Development Challenges

Malawi is to likely meet four of the eight Millennium Development Goals (MDGs); Reduce Child Mortality; Combat HIV and AIDS, Malaria and other diseases, Ensure Environmental Sustainability, Develop Global Partnership for Development. However, the country still faces some challenges:

  • While efforts are being made to improve Public Financial Management, with some improvements in internal controls, financial reporting, cash management and audit, there remain significant weaknesses in aggregate fiscal discipline, strategic allocation of resources and effective service delivery.
  • Sustainability of policy reforms remains a challenge. The country’s history of policy implementation has been largely characterized by periods of good policy implementation with episodes of policy reversals associated largely with different political cycles.
  • Investment climate constraints hinder private investment. The 2014 Doing Business report ranks Malawi at 171 out of 189 countries. The main obstacles to doing business include poor support infrastructure and services such as electricity, water, transport, an uncertain economic environment, poor legal and regulatory framework, difficult access to long-term finance and a limited skills base.
  • Malawi’s economy is agro-based yet the country depends on one major export crop –tobacco (accounting for 80% of total exports). The country needs to both diversify within agriculture and more broadly across sectors. This would also depend on adequate road access and marketing infrastructure.
  • High population density and poverty have led to significant human pressure on the environment and degradation of land and forests which negatively affect agricultural productivity, fisheries, and hydropower generation.
  • Malawi is prone to natural disasters primarily related to climate variability and change. Improved resilience to climate risks is extremely important for the majority of rural households who depend on the fragile natural resource base for their livelihoods.

Last Updated: Apr 17, 2015

5th Country Assistance Strategy (FY13-FY16)

Fully aligned with the Second Malawi Growth and Development Strategy (MGDS II) and the Economic Recovery Plan launched in October 2012, the Malawi Country Assistance Strategy responds to recent developments in the economic and governance context in Malawi. It has three strategic pillars which focus on inclusive growth, enhancing human capital and resilience, and improved governance outcomes.

THEME 1: PROMOTING SUSTAINABLE, DIVERSIFIED, AND INCLUSIVE GROWTH

Under this theme, the Bank is supporting efforts to:

  • Restore sound macroeconomic management through improved efficiency and targeting of public expenditures, adoption of an appropriate exchange rate regime and foreign exchange system, better monitoring of budget planning and execution, and strengthened domestic debt management.
  • Enhance the business environment by improving the ease of business processes, increasing the use of effective public-private partnerships (PPPs), especially in agriculture, energy, irrigation, transport and tourism.
  • Improve access to financial services.
  • Ease energy and other infrastructure constraints.
  • Increase entrepreneurship and skills, and promoting regional integration and regional infrastructure by enhancing access to ports through improved railway and road connectivity and streamlining cross-border customs clearance processes.
  • Strengthen diversification and increase productivity, particularly for crops and exports, and, improve overall land and water resource management and institutional capacity.

THEME 2: ENHANCING HUMAN CAPITAL AND REDUCING VULNERABILITIES

This theme supports Government efforts to accelerate progress towards the Millennium Development Goals (MDGs) by improving the delivery of social services in education, health, nutrition, youth development, and water and sanitation. In enhancing human capital, the Bank continues its support to the National Education Sector Plan, the national HIV/AIDS strategic plan (2011-2016), and improving nutrition security. In lowering vulnerability and enhancing resilience, the Bank is helping improve social safety net systems for the urban and rural poor including in times of natural disasters and other shocks. The Bank is also continuing support to the National Water Development Program to increase access to sustainable water supply and sanitation services. Better preparedness for and mitigating vulnerabilities against climate change and disaster risks is another key focus area.

THEME 3: MAINSTREAMING GOVERNANCE FOR ENHANCED DEVELOPMENT EFFECTIVENESS

This theme comprises a cross-cutting effort to help strengthen both supply-side and demand-side institutions, with a focus on mainstreaming across the portfolio. The supply-side comprises public sector governance mechanisms through which the government organizes itself to deliver on the strategy. Examples are improving public financial management and procurement systems; monitoring and evaluation (M&E), including an enhanced statistics system; and improved decentralization capacities. On the demand side, focus is on strengthening social accountability for service provision using mechanisms that produce and make available to citizens and users information on the magnitudes of budgetary transfers to front-line service provision units, and to local governments, as well as the obligations and commitments of government in relation to what services citizens should expect, and actual performance of front-line service provision units.

Current Portfolio

As of March 2015, the Bank portfolio in Malawi has 11 projects with a commitment value of US$810.5 million. Since 1966, the Bank Group has committed about US$3 billion to Malawi supporting over 125 operations. Of the five World Bank Group agencies, the International Development Association (IDA) has the most operations, followed by the International Finance Corporation with a commitment value of $27.7 million. 

Last Updated: Apr 17, 2015

Results of the Fourth CAS (FY07-FY11)

The 4th CAS set out to help Malawi build foundations of prosperity. This meant focusing on such issues as agriculture, education, HIV/AIDS, private sector development, and ensuring better public expenditure management. These issues were divided into four pillars with the following results:

SMALL HOLDER AGRICULTURE

Increasing productivity and food security was a priority, with yields expected to improve through increased irrigation and market incentives, specifically for smallholder farmers in the 11 districts supported by the Bank program. Through three projects: Community Based Lands Development Project (CBRLD), Irrigation, Rural Livelihoods and Agricultural Development Program (IRLADP) and the Agricultural Development Program-Support Project (ADP-SP) the following had been achieved by 2010:

  • The country’s four major irrigation schemes rehabilitated and fully functional, and more that 3000 ha on small and medium scale irrigation schemes, increasing rice and maize yields by a minimum of 30 per cent. Together with the Farm Input Subsidy Program, the majority of households were food secure in the last 2 years.
  • Fifteen thousand people were resettled from densely populated areas, enabling them to double or treble their food production capacity. From this resettlement program, Government has drawn lessons to inform its land reform program.
  • Micro-weather insurance schemes initiated with Bank support are expanding on commercial terms with growing interest from the Banks and Insurance Association of Malawi.

However, a lot more remains to be done to put agriculture in Malawi on a commercial footing. The Bank is still in the initial stages of work with the Ministry of Agriculture and Food Security to develop a project to promote more commercialized farming practices.

HIV/AIDS AND NUTRITION

Behavior changes were expected in order to contribute to a slowing HIV infection rate and an increased number of people on ARV treatment. It was also expected that government would develop a coherent Program on improving the nutritional status of children under two years of age. The following was achieved:

  • Number of people living with HIV/AIDS receiving anti-retroviral treatment improved from approximately 57000 in 2006 to close to 200,000 in 2010, exceeding original targets.
  • Malawi’s HIV adult prevalence rate decreased to 10% by the end of 2011. Access to treatment has also contributed to improving life expectancy to 52 years from 38 years in 2005.
  • Chronic malnutrition now at 36% compared to about 49 per cent in 2005.

Malawi still lacks a coherent program on nutrition although a nationwide awareness and information campaign which was undertaken promoted good feeding practices for under-5 and school-age children. A multi-partner sector study examining determinants of infant and child feeding practices has been completed, and will provide a basis for a nutrition program. The Bank and other donors will follow on with a nutrition project in the 5th CAS.

ENVIRONMENT FOR DOING BUSINESS

The program expected to achieve improvements in the efficiency and reliability of electricity supply, and “Doing Business” indicators for increased trade across borders and reductions in the costs to start a business. The major achievements were:

  • Access to commercial justice improved with the establishment of the High Court Commercial Division in 2007. Time to settle commercial disputes reduced to 98 days in 2011, down from 337 in 2006.
  • Time to register a business reduced from 88 days in 2010 to 49 days in 2011.
  • Improvement of the sector management and governance due to the establishment in 2008 of the Malawi Energy Regulatory Authority (MERA), and an increase in tariff levels by an average of 56% from very low levels, which will strengthen the financial position of the power utility ESCOM.
  • Improvement in the condition of the road network: The Bank’s Road Maintenance and Rehabilitation Project (ROMARP), which closed in June 2006, established the roads database and the Road Fund, and supported significant institutional reform of financing and planning in the roads sector. Investments in the road sector have resulted in a significant improvement of the network: the Ministry of Transport and Public Infrastructure reports that 83% of classified roads are in good or fair condition. The Bank and European Commission have supported the preparation of a multi-modal transport study and Government is preparing a Transport Sector Investment Program. The condition of the road network has improved significantly, and the outlook for the financing of maintenance through road user charges is encouraging.

The underperformance emanated from three main areas: lack of improvement of the business environment especially the energy agenda where the interconnector project was cancelled; delayed implementation of reforms; and, the deteriorating political economy.

IMPROVEMENTS IN GOVERNMENT EXPENDITURE MANAGEMENT

Malawi was expected to achieve improvements in expenditure management as measured by the public financial management (PEFA) indicators. Below are some major achievements:

  • Comprehensiveness and transparency of the budget: Government progressed in improving the linkage between the MGDS and the budget. Since 2008/09, Government introduced an output based budget framework where Ministries, Departments and Agencies (MDAs) are now required to make their budgets according to MGDS priorities. Further, the presentation and structure of the budget, together with the associated chart of accounts, have been improved to become compliant with international fiscal reporting standards.
  • External Audit and Scrutiny: Progress has been made to improve the timeliness and coverage of audits. Government has since cleared the backlog of audits and is now current with the audit of the 2009/10 financial statement.
  • Progress on capacity development in internal audit with all ministries now having internal audit units, and at least 60% of the ministries have fully functional audit committees.

The key challenge in audit and external scrutiny is to make timely follow-ups of the audit issues raised by the Public Accounts Committee of Parliament.

ANALYTICAL AND ADVISORY ACTIVITIES

Some of the notable AAA that have made a significant contribution to the Malawi planning and policy environment include the Education Country Status Report (CSR), the Mining Sector Review, the Country Economic Memorandum (CEM), the 2008 Financial Sector Assessment (FSAP) and the Malawi Social Protection Stock Take. The CSR brought into focus issues affecting the quality of education in Malawi at various levels. The findings fed into the National Education Sector Plan (NESP) which has assisted the Government to leverage resources from various donors and the Fast Track Initiative (FTI). The Mining Sector Review (MSR) in 2009 brought worldwide experiences in the management of mining transactions and informed the design of the Mining Policy which is undergoing Cabinet review. Malawi needed such experience since it is a newcomer in the mining arena and the MSR provided the analytical underpinnings of a new Mining Governance and Growth Support Project which is scheduled for Board in March 2011. The CEM is a rich piece which acknowledges the progress that Malawi has made in improving its macroeconomic environment and proposes options on maintaining the status quo or ensuring continued future growth. The 2008 FSAP was instrumental in bringing financial sector development to the policy debate in Malawi and its recommendations have greatly assisted in leading to other AAA such as the development of the Malawi Financial Sector Development Strategy and Finscope Demand and Supply Side Surveys. A Financial Sector TA operation has also been developed to implement the recommendations of the FSAP. The Social Protection Stock Take informed the design of the social protection policy through provision of a stock take of social protection in Malawi and, in partnership with the development of a Malawi Social Protection Framework, helped Malawi move towards the development of the Social Support Policy and Program.

Last Updated: Apr 17, 2015

Implementing the Paris Declaration in Malawi

Malawi’s main donors are Department for International Development (DFID), European Commission (EC), World Bank, African Development Bank, Norway, Germany, USAID, and China, which established diplomatic ties with Malawi in 2007. These account for more than 90% of Malawi’s development assistance. Other donors include the traditional United Nations (UN) institutions (notably the United Nations Development Programme (UNDP), UNICEF, the World Health Organization (WHO), and the United Nations World Food Programme (WFP), Global Fund, Japan International Cooperation Agency (JICA), the Icelandic International Development Agency (ICEIDA), and Ireland.

The Malawi government is leading coordination of donor support through its Development Assistance Strategy (DAS) which is a coordination plan aimed at improving the effectiveness of aid inflows to Malawi and defining what the government and Development Partners (DPs) have to do to implement the Paris Declaration on Aid Effectiveness. The DAS sets out principles, roles, and structures, and has an action plan and a monitoring framework. In early 2010, in line with DAS, DPs and the government established sector working groups whose responsibilities include guiding prioritization of donor aid at sector level.

 

Last Updated: Apr 17, 2015


LENDING

Malawi: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments