LILONGWE, July 25, 2024 – A drought and an incomplete reform agenda are undermining prospects for a rapid economic recovery in Malawi. Economic growth in Malawi fell short of expectations in 2023 and is projected to remain subdued in 2024. While the implementation of planned macroeconomic and structural reforms is expected to boost GDP growth over the medium term, an El Niño-induced drought has worsened the near-term growth outlook. The drought has compounded longstanding macroeconomic imbalances, with large fiscal deficits, balance-of-payments challenges, unsustainable debt, and price instability weighing on economic activity since 2020. As a result, the growth projection for 2024 has been revised downward to 2%. This information comes from the recently launched Malawi Economic Monitor, 19th Edition titled “Reforming with Urgency – Malawi’s Path to Economic Stability” with a special topic on investing in adaptive safety nets.
A weak harvest has intensified food insecurity. The production of staple foods has fallen behind national needs, preventing many households from accessing sufficient nutrition. Many households are expected to enter the 2024/25 lean season with limited food stocks, depleted finances, and precarious health conditions. Given the grain deficit in the country, limited food stocks in the region, and little recent progress in expanding irrigated maize production, increased grain imports are urgently needed.
A sustained recovery requires urgently implementing planned reforms. Addressing Malawi’s difficult economic situation necessitates a combination of immediate emergency-response efforts and structural reforms. The coming months will be critical to ensure that planned macroeconomic reforms are implemented and that the external and fiscal adjustment process remains on track. At the end of 2023, the government reached an agreement with the IMF on a four-year program under the Extended Credit Facility (ECF). This achievement has bolstered confidence in the reform process; however, success is far from assured. Rebalancing the economy and enabling faster, more inclusive growth while strengthening resilience against shocks will require accelerating reform efforts.
The 19th edition of the Malawi Economic Monitor outlines urgent policy measures required to stabilize the economy, protect vulnerable households, and enhance long-term growth:
i) Restoring macroeconomic stability: Planned macro-fiscal reforms must be implemented and sustained to achieve fiscal consolidation, ensure successful external debt restructuring, and contain domestic borrowing growth.
ii) Bolstering food security: Given the upcoming lean season's food deficit, it will be essential to import maize to alleviate food insecurity while advancing policy measures to build resilience. The existing social protection infrastructure must be effectively leveraged to provide targeted support to poor and vulnerable households.
iii) Strengthening productive capacity: With climate-induced natural disasters likely intensifying extreme weather events promoting sustainable farming practices investing irrigation systems will be essential building resilience ensuring adequate food security.
The report’s Special Topic highlights improvements in Malawi’s social protection system performance including cutting-edge innovations climate adaptation household-level support exceptionally vulnerable climate change other shocks lack savings coping mechanisms increases burden such every three Malawians escaped poverty between 2010-2019 four others fell into poverty due weather-related shocks as climate risks continue intensify increasingly face multiple successive overlapping shocks social protection system therefore country’s main policy framework building long-term resilience climate weather-related shocks household level
Greater investment social protection building strong foundations laid last two decades enable respond swiftly effectively volatile environment recent years investments improving social protection system highlighted capacity protect larger share households more effectively broader range shocks despite achievements institutional fragmentation remains challenge sector divided among several different line ministries tasked various aspects program implementation complicates coordination policy framework also incomplete further reforms sector should emphasize sustainable financing prioritize progressive expansion coverage benefit levels