The World Bank in Malawi

Economic Overview

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.

Country Overview

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.

Development Challenges

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

The World Bank Group Malawi Country Partnership Framework (CPF) FY21-25  focuses on three areas: bolstering foundations for growth and accountability, promoting private sector-led jobs, and strengthening human capital development, with digital development and women’s empowerment as cross-cutting themes. The CPF is anchored in the Malawi 2063 vision. A Performance and Learning Review of the CPF is expected in the first quarter of FY24.

As of March 2023, the World Bank’s portfolio consists of 19 IDA lending operations with a total of $2.66 billion of which five (worth $342.77 million), are regional projects. These are complemented by $127.34 million in trust funds (both Bank and Recipient Executed).

The portfolio includes financing for programs in agriculture and food security, urban resilience and land, social protection and jobs, governance, basic service delivery (including health, education, and water and sanitation), and support in the energy, transportation, digital development, trade logistics, finance, and competitiveness sectors.

International Finance Corporation (IFC)

IFC’s engagement in Malawi focuses on investment and advisory activities that help diversify the economy, develop energy infrastructure, and improve access to finance.

Under the infrastructure and natural resources program, IFC is providing public-private partnership advisory services to the water, transport, and energy sectors. IFC supports private sector involvement in hydro and other renewable energy power projects identified as a priority in Malawi’s Integrated Resource Plan.

IFC is supporting value addition enterprises in the agribusiness sub-sector, diversification of Malawi’s exports, and increasing agricultural productivity through support of irrigation projects and working with the government to improve the environment for private sector investments in this sector.

In the financial sector, IFC provides advisory support with the aim of increasing access to finance for small and medium enterprises (SMEs), and to help improve the collateral registry and credit reference systems.

Last Updated: Mar 23, 2023

The COVID-19 Emergency Response and Health Systems Preparedness Project 

Overall, the COVID-19 Emergency Response and Health Systems Preparedness Project in Malawi has supported health system strengthening, COVID-19 vaccine procurement and deployment, and maintenance of essential health services including response to cholera. The World Bank has supported the response by providing support in the following areas:

• Procured and delivered 1.86 million COVID-19 vaccine doses and their deployment across the country.
• Strengthened Malawi’s capacity to prevent, diagnose, and treat COVID-19 through the procurement of critical medical and diagnostic supplies and equipment, as well as the training of health workers on infection prevention, COVID-19 testing, case management, and surveillance.
• Procured essential medicines and medical supplies to ensure continuity of essential health services during the COVID-19 and cholera outbreaks.
• Provided support towards cholera outbreak response through triggering of the Contingent Emergency Response Component (CERC) worth $12 million.

Transforming smallholder agriculture to commercial through agriculture commercialization

The $95 million Agriculture Commercialization Project  (AGCOM) is transforming smallholder agriculture to commercial by linking producer organizations to markets. The project is helping smallholder farmers organize themselves, achieve economies of scale, and sell their produce to well-established off-takers, such as agri-processors in dairy, soya, rice, beans, coffee, tea, macadamia, and cassava. Through the subprojects, the farmers are expected to increase their sales by up to 30% and consolidate their participation in promising markets. The project directly contributes to Pillar 1 (Improved agricultural Productivity and Commercialization) of the Malawi Vision 2063.

Since the start of its implementation, 345 producer organizations have been supported, with increased value of sales (over 20 value chains) to approximately $20 million, as farmers have mobilized $3.3 million as their contribution to match the grants made available by the project.

Nearly 74,000 smallholder farmers (about 43,660 women and 20,720 youth) have so far benefited from the project.

Improving access and quality of water supply and sanitation services in Lilongwe City

The Lilongwe Water and Sanitation Project (LWSP) aims at increasing access to improved water services and safely managed sanitation services in Lilongwe City. Since its implementation in 2018:

• 348,387 people (of which 179,923 are women, 52%) have benefited from water supply upgrades in the city.
• 370km of new pipes have been installed, of which 187.2km are in the network expansion areas of Nanjiri/Nathenje, Nalikule, Mpingu/Chitedze and Dzenza. The service expansion will benefit 130,000 people through an additional 14,700 household connections and 60 water kiosks.
• Over 50,000 people are currently benefiting from safely managed sewerage services and 961 vulnerable households residing in peri-urban areas have benefited from improved toilets.
• Sanitation units have been finalized in 10 markets and 10 primary schools in Lilongwe and the City Council has prepared a sanitation and drainage masterplan that outlines the priority investments and institutional development interventions to improve livability.

Last Updated: Mar 23, 2023

The European Union, African Development Bank, United Nations agencies, bilateral donors such as FCDO, USAID, Germany, Norway, and China, the World Bank Group, and the International Monetary Fund are among Malawi’s key partners.

The government and its cooperating partners have a Development Cooperation Strategy (DCS 2014-2018) which is currently being updated. It guides development cooperation in the country. The DCS advocates inclusive partnerships, government leadership and country ownership of the national development agenda, and alignment around national systems and strategies. It also embraces focusing on results that matter to poor citizens and encourages partnerships among development actors based on mutual trust, transparency, and accountability.

Last Updated: Apr 07, 2022