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.
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