The Southern African nation of Malawi is bordered by Mozambique to the south and west, Zambia to the east, and Tanzania to the north. It has an estimated population of 16.8 million as of 2014. With the support of the International Monetary Fund (IMF) and the World Bank, Malawi has been able to make important economic and structural reforms and sustain its economic growth rates over the last decade. Nevertheless, poverty is still widespread and the economy remains undiversified and vulnerable to external shocks.
Malawi continues to enjoy a stable and democratic government. Since the end of the one party regime in 1993, it has organized five peaceful presidential and parliamentary elections, one of which was a tripartite including local government elections. Current president Prof. Arthur Peter Mutharika is in his first five-year term which started in 2014. The next elections are due in 2019.
Real gross domestic product (GDP) grew by 5.7% in 2014 but slowed down to 2.8% in 2015 as Malawi suffered from dual challenges of adverse weather conditions and macroeconomic instability. Flooding in southern districts followed by countrywide drought conditions saw a contraction in agricultural production. Maize, the key crop for food security purposes, saw a 30.2% year-on-year drop in production. As a result, an estimated 2.8 million people (17%of the population) are unable to meet their 2015/16 food requirements.
Weak fiscal discipline has been a core driver of macroeconomic instability during recent years. In the wake of a public financial management scandal in 2013, that triggered sharp reductions in the level of on-budget development assistance received by Malawi, Government has run persistently large fiscal deficits standing at 5.4% in FY14/15. Similarly expenditure has been under pressure due to rising debt service costs, increasing public sector wage demands, costly subsidy schemes and the settlement of outstanding arrears. Although authorities have borrowed heavily from domestic sources in order to finance fiscal deficits, data for the second half of 2015 shows that domestic borrowing requirements have fallen within end-year levels.
Poverty and inequality remain stubbornly high in Malawi. The 2010/11 Integrated Household Survey showed that over half of the population was poor and one quarter lived in extreme poverty. These numbers are not expected to change much with the new estimates to be available in 2017. Poverty has been increasing in rural areas where 85% of the population lives, compared to urban areas where it fell significantly from 25 to 17%. A key obstacle to reducing poverty is low agricultural productivity. The majority of the poor remain locked in low productivity subsistence farming.
Malawi’s main challenges include improving infrastructure mainly energy and water delivery which are adversely affecting private sector investment, addressing a scarcity of skilled human resources, provision of health care, reforming its public financial management (PFM) system, and the large and relatively inefficient public service including parastatals .
Malawi’s reform of its PFM is critical to restore public and donor confidence. Advances have been made in fixing security gaps that were identified during “cashgate.” The Electronic Fund Transfer (EFT) has been successfully used for payment of salaries of all civil servants and the risk assessment for using the EFT has been done. There is also an improvement in the submission of consolidated financial statements to the Auditor General for auditing.
Last Updated: Apr 12, 2016