The East 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 inhabitants 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 1.9% in 2012, 5.2% in 2013, and an estimated 5.7% in 2014. Growth in 2014 was primarily driven by growth of the agricultural; information and communication; and wholesale and retail trade sectors. Projections for 2015 indicate slowed growth to slightly below 5%. In the 2014/15 season Malawi was hit by floods and drought which affected crop production. Maize is estimated at 2.7 million metric tonnes while tobacco which is the country’s major foreign exchange earner is estimated at 170 million kgs.
The government continues to run a fiscal deficit estimated at 5.9 percent in 2014/15 and is expected to remain as such in FY2015/16. The economy continues to operate in a difficult fiscal environment characterized by a large budget deficit compounded by an accumulation of arrears and rising debt service costs. With limited scope for foreign financing at levels previously available to the government following the “cashgate” scandal, the authorities continue to borrow heavily from domestic sources, which further runs the risk of pushing inflation and lending rates up, crowding out private sector investment and hence constraining economic growth.
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: Oct 01, 2015