Malawi Economic Outlook

Economic performance and outlook

Flooding in 2014/15 and drought in 2015/16 hurt agriculture, the economy’s dominant sector. Erratic rains affected the country’s hydro-dependent electricity generation, leading to widespread blackouts and water shortages. The power shortages severely affected small and medium-size enterprises dependent on distributed power. Larger businesses generally have power backup systems to maintain production, but using these adds to the cost of doing business. In 2016/17, adequate rainfall improved agricultural production, increasing the maize, groundnuts, and beans harvests. The economy is expected to double its 2016 GDP growth rate of 2.3% to 4.5% in 2017. The medium-term outlook (5%–5.5% in 2018–19) is more positive as the economy stabilizes, but the country remains vulnerable to external shocks and fiscal slippages.

Macroeconomic evolution

Macroeconomic stability showed signs of improvement during the past 12 months. Year-on-year inflation dropped considerably, from 218% in 2016 to 12.3% in 2017. Declining food price inflation has been the main driver in reducing overall inflation. Since early 2016, the Malawi kwacha further stabilized against the U.S. dollar, reducing exchange rate volatility while stabilizing nonfood prices and helping lower inflation. The Reserve Bank of Malawi started to ease monetary policy by reducing the policy rate by 600 basis points to 18% in July 2017. Although government revenues remained largely flat during the past two fiscal years, spending rose in 2014–16 as the government increased its maize purchases and repayments of arrears. Fiscal year 2016/17 showed signs of fiscal tightening as maize importation was curtailed. The government is expected to continue to reduce the budget deficit in the medium term. At moderate risk of debt distress,

public debt stands at 54% of GDP and is projected to slowly decline in the medium term.


Higher rainfall in 2016/17 was a key contributor to the overall macroeconomic situation in Malawi. First, domestic production of maize increased 36%, which eliminated the fiscal pressures of maize importation. The government is implementing fiscal reforms and improving accountability and transparency systems, which are starting to bring back development partners that withdrew budget support following the Cash Gate Scandal. Earlier in 2017, the government received $80 million in general budget support to strengthen policy and institutional reforms in agriculture and to enhance public financial management systems.


Economic performance depends largely on weather conditions, which are expected to be more variable due to climate change. The country’s economic outlook is greatly influenced by agricultural performance, government economic management programs, global commodity prices, and donor support. Although the electricity supply improved during the rainy season, the flows in the Shire River—the source of 95% of Malawi’s electricity production—are insufficient for generation at full capacity. Water levels in Lake Malawi, which feeds the Shire River, have been about 1 meter under historic averages; the below–full capacity supply is expected to continue. Elections in 2019 are expected to increase pressure on fiscal spending as the current administration strengthens efforts to win re-election. Maintaining financial sector stability is a key priority. Efforts are under way to strengthen capitalization of banks, but the sector remains exposed to high concentration risk due to the limited number of large creditworthy borrowers.

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