Malawi Economic Outlook

  • Malawi’s real GDP growth is estimated to have been 5% in 2013 and is projected to accelerate to 6.1% and 6.2% in 2014 and 2015 respectively, driven by tobacco exports and continued growth in the key sectors of agriculture, manufacturing and services.
  • The main short-term challenge for the government is to consolidate macroeconomic stability and improve governance, while strengthening the enabling environment for private sector investment for sustained and inclusive growth.
  • While the country is on track to achieving four of the eight Millennium Development Goals (MDGs), it faces serious challenges in meeting the MDG targets relating to universal primary education and to reducing gender inequality and maternal mortality.

Real gross domestic product (GDP) growth is estimated to have rebounded to 5% in 2013, up from 1.8% in 2012, mainly thanks to a good tobacco season and strong recovery of growth in manufacturing, construction, and the wholesale and retail trade sectors. The output of tobacco increased from 79.8 million kiIogrammes (kg) to 168.6 million kg in response to improved auction prices following the depreciation of the Malawian kwacha (MWK). Strong recovery in tobacco output boosted overall agriculture sector growth to 5.7% from a 2.3% contraction in 2012. Manufacturing output growth increased to 6.2% from -1.3%, buoyed by an improvement in the availability of foreign exchange. Expansion in agricultural production contributed to the revival in manufacturing output activities, especially agro-processing. For 2014, Malawi’s real GDP growth is projected at 6.1% and is expected to accelerate further to 6.2% in 2015. This positive growth outlook presupposes continued macroeconomic stability, high tobacco prices, adequate availability of foreign exchange, favourable weather conditions and improvement in the business climate.

The macroeconomic reforms pursued by Malawi under the Economic Recovery Plan (ERP) began to yield results as evidenced by improved foreign exchange availability and better incentives for producers of export commodities. In spite of the gains, the country has continued to face macroeconomic pressures. These include inflation, exchange rate volatility and excessive government domestic borrowing. To curb inflation, the Reserve Bank of Malawi (RBM) maintained a tight monetary policy stance. While inflation has started to decline, the pace of disinflation has been slower than expected because of the sharp depreciation of the Malawian kwacha. The macroeconomic challenges faced by Malawi were exacerbated by the revelation in September 2013 of the looting of public funds through the Integrated Financial Management System (IFMIS), known as “cash-gate”. Donors suspended budget support, leading to a widening of the fiscal gap. In response to the scandal, the government is implementing, with the support of donors, a comprehensive action plan to correct weaknesses in public finance management (PFM). The financial scandal has underscored the urgent need for Malawi to redouble efforts to improve accountability and transparency in the public sector. The country is preparing to hold its fifth multi-party democratic elections in May 2014, which will serve as a further test of the maturity of its democracy.

Malawi’s export basket is dominated by primary commodities, but, with globalisation, opportunities for exports of processed products have emerged. The country has not yet re-positioned itself to exploit opportunities to integrate into global value chains (GVCs). Obstacles to integration into GVCs include poor infrastructure, low skills and a weak business climate. The government is implementing the national export strategy with a view to enhancing export competitiveness and promoting exports of processed agro-products to feed into regional and global value chains.

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