Malawi’s economic recovery requires strong commitment to sustain reforms—World Bank

* Growth is estimated to reach around 3% in 2024, primarily due to a modest easing of global commodity prices

* A moderate improvement in agricultural production, and increased output bolstered by improved foreign exchange inflows

By Duncan Mlanjira

In its 18th edition of the Malawi Economic Monitor, the World Bank says for Malawi to sustain economic recovery and reforms, it requires strong commitment as economic growth is projected to increase — “driven by an improved macroeconomic environment and sustained structural reforms”.

Malawi Economic Monitor provides an analysis of Malawi’s economic and structural development issues and it was presented at a stakeholders forum at Ryalls Hotel in Blantyre on February 27 as part of the ongoing series published twice each year.

It intends to foster better-informed policy analysis and debate regarding the key challenges that Malawi faces in its endeavour to achieve inclusive and sustainable economic growth.

In the report presented to the stakeholders that included government officials, it says: “Growth is estimated to reach around 3% in 2024, primarily due to a modest easing of global commodity prices, a moderate improvement in agricultural production, and increased output bolstered by improved foreign exchange inflows.

“Over the medium term, growth is expected to average 4%, underpinned by ongoing and announced macroeconomic reforms designed to address external and fiscal imbalances.

“Fiscal consolidation measures and public financial management reforms, supported by the new International Monetary Fund (IMF) extended credit facility (ECF) program and the new World Bank development policy operation, are critical for regaining long-term macroeconomic stability and fiscal sustainability.

“The gradual stabilization of the current account deficit, expected to be around 9% of GDP, is anticipated with the support of an improved policy environment.

“At the same time, stabilization supports an enhanced business climate and increased investment by private enterprise and in key infrastructure – including for electricity generation and crop diversification.

The publication further says inflationary pressures “will persist in the short term but are expected to ease toward the end of 2024”, adding: “This projection is based on both the expected reduction of short-term effects from the exchange rate adjustment and the implementation of supportive macroeconomic and structural policy reforms.

“Nevertheless, the ongoing El-Nino season may lead to lower than expected agricultural production and sustained elevated food prices.

“Looking ahead, the implementation of prudent monetary and fiscal policies is essential to mitigate the impacts of these factors and lower inflation sustainably.

The 18th edition goes further to outline urgent actions required to consolidate the stabilization of the economy, enhance growth, and safeguard the most vulnerable — specific recommendations include:

1. Bolstering macroeconomic stability: Sustain the ongoing macro-fiscal reforms, with a focus on implementing plans to increase the flexibility of the exchange rate, rebuilding foreign reserves, enforcing fiscal discipline, enhancing public financial management, and attaining debt sustainability.

The success of planned fiscal tightening, related fiscal governance reforms, and effective external debt restructuring will be critical for regaining debt sustainability.

2. Creating the foundations for export-led growth: Stimulate agricultural growth by advancing with reforms of the affordable input program (AIP) and increased investment in commercialization initiatives. It is critical to encourage exports by reducing non-tariff barriers and supporting the development of an efficient and transparent mining sector.

3. Building resilience and protecting the poor: Given the heightened risk of extreme weather events and food insecurity, it is essential to implement expanded social cash transfer and climate-smart public works projects, as well as to strengthen the functioning of agricultural markets.

Implementing of the Disaster Risk Management Bill will enhance preparedness for future disasters and contribute to overall resilience.

The World Bank’s assertion that Malawi’s economic recovery requires strong commitment to sustain reforms has also been made by several of the country’s economic gurus.

Soon after Finance & Economic Affairs Minister, Simplex Chithyola Banda presented the 2024-2025 financial year in Parliament — which outlines Government reform programmes undertaken to improve the effectiveness and efficiency of service delivery, Chief Economist Chifipa Mhango, said it has “some positive elements to support a pro-poor approach but the only obstacle could be implementation”.

Mhango, who is Chief Economist for South Africa-based Don Consultancy Group, said: “Malawi as a country has massive potential and resources towards a strong economic growth trajectory. However, a strong political will towards monitoring of all initiatives by Government remains imperative

“It has to be acknowledged that poverty, inequality and high cost of living continues to dominate the economic landscape — therefore any Budget presented must be geared towards addressing this challenge, as is the case now.

“I cannot fault the presented Budget on elements of dealing with these challenges at all, however, what I am interested on is implementation, and this should be monitored on a monthly basis by Malawi Government itself.

“Key measures to be considered, which I have lobbied for years are reducing reckless spending coupled with excessive borrowing, adhering to the project implementation with a regional balance and guidelines.

“In Malawi, for years, we have observed projects missing completion deadlines, with initial costs being elevated — this should be avoided in this Budget when it comes to implementation.

“The new concept to restructuring of the Budget from 10% to 30% towards Development expenditure is a good start, as Malawi Government, regardless of a political party in Government, has spent on average, just 10% towards development in the past 10 years, with almost 80% on administrative expenditure.

“Such has derailed efforts towards high economic growth rates for the country. This is easy to monitor monthly and I would recommend that, where there is diversion from the new principle of 30% towards development expenditure, there is immediate intervention — as this should not just be in a Budget statement only but rather reflected in expenditure patterns monthly.

“Malawi has the potential to achieve sustainable economic growth rates of over 5%, if statements are reflected in action on the ground,” said the Malawi, Chief Economist, whose Don Consultancy Group, whose moto is: ‘Unlocking African Solutions’ and tries to support Malawi Government for free.

Another economic think tank said: “Malawi must begin to create solutions based on nature of our economy. We seem to be seeking solutions from institutions that are designed to keep us poor — systems that destroy us cannot be the very system that we go to for solutions.

“Let us be imaginative — we have been around for 60 years, we should be able to sort ourselves out of this quagmire with our own unique solutions that tackle the problems we have. We must understand that our main source of Malawi independent forex is agriculture, whose demand is inelastic.

“Donors’ forex in most instances are just figures that are carefully designed for Malawi to import from donors — basically it is not free!

”Given inelasticity of most of our agricultural products, planning may have to be well crafted to make Malawi earn more forex. One key element is expansion of trade partners beyond traditional buyers,” he said.