Malawi’s economy has been significantly weakened by a series of exogenous shocks and persistent macro-fiscal imbalances. Growth is projected to decline to 0.9% in 2022, from 2.8% in 2021, with lower agricultural output, erratic electricity supply, forex shortages affecting importation of raw materials and high global commodity prices. Economic growth is projected to slightly increase in 2023 but remain subdued. The economic recovery is projected to be gradual and significant risks remain.
Headline inflation picked up to 26.7% year-on-year in February 2023, after slightly easing in November and December 2022 from its peak at 26.7% in October 2022. Food inflation remains high, largely due to an increase in maize prices as well as elevated global food prices for grains and cooking oil. Non-food inflation increased to 20.5%, with particularly large increases in the costs of transport and utilities driven by international price increases and the adjustment of the exchange rate. The Reserve Bank of Malawi devalued the Malawi kwacha, MWK, against the US dollar by 25% in May 2022. However, the spread between the official rate and less strictly controlled rates on cash purchases at foreign exchange bureaus at times has exceeded 50% as of end of February 2023, surpassing the pre-devaluation level. Official reserves continue to be very low, declining further from their gross position of 0.5 months of import cover at the end of 2022. An acute lack of foreign currency is impeding businesses and is increasingly reflected in the shortage of imported goods, including essential medicines and petroleum products.
Despite good revenue performance, there has been limited progress towards fiscal consolidation in FY2022/23. By the end of the third quarter of the fiscal year (the fourth quarter of 2022), revenue collection amounted to 11.6% of GDP. Expenditure totaled 18.3% of GDP driven by higher spending on interest, wages and salaries, and goods and services. Consequently, the fiscal deficit widened, reaching 6.7% of GDP for the first nine months of the year. The government is committed to reforming the Affordable Inputs Programme—a driver of deficits in recent years—by reducing its allocation and improving its efficiency.
Malawi’s public debt is currently assessed to be in distress, but the ongoing implementation of the Government’s debt restructuring strategy means that debt is sustainable on a forward-looking basis (The World Bank-IMF Debt Sustainability Analysis, November 2022). Rising domestic financing and borrowing from regional development banks on a non-concessional basis have significantly increased Malawi’s public debt from 32% in 2013 to 55% of GDP in 2020 and 64 % in 2022. This is increasingly reducing fiscal space for development spending and risks crowding out private sector investment.
Climate shocks, low agricultural productivity, and slow structural transformation mean that poverty levels remain high in Malawi. The internationally comparable poverty headcount ratio— $2.15 a day (2017 PPP)—stood at 71%, one of the highest globally. The Malawi Vulnerability Assessment Committee (MVAC) projected that 3.8 million people (about 20% country's population) in Malawi will face hunger between November 2022 and March 2023.
Malawi continues to rely on subsistence, rainfed agriculture, which limits its growth potential, increases its susceptibility to weather shocks, and creates food insecurity. Trade policies and an unpredictable business environment continue to impede investment and commercialization, as well as erratic electricity supply.
Public investment has been low and of mixed quality. Weak fiscal management and economic policies have contributed to recurring and large fiscal deficits, mostly funded by high-cost domestic borrowing and resulting in a surge in public debt. Together with external shocks, economic management choices have compounded the acute balance of payments crisis, which needs addressing urgently for Malawi to realize its economic and development potential.
Last Updated: Apr 07, 2023