Covid-19 knocking Malawi economy into recession

By Tawina Maluwa

Ministry of Finance forecast shows Malawi’s economy is to experience a recession for the first time in twenty years. The economy is to contract by -3.5% in 2020 according to International Monetary Fund (IMF) revision of its Sub Saharan growth rate forecast from 3.1% to -1.6%.

The Ministry states that the economy grew by 5.1% in 2019 improving from real Gross Domestic Product (GDP) of 3.9% recorded the previous year.

However, as the case is with many countries across the world, growth prospects for Malawi are shrouded in uncertainty due to the coronavirus (Covid-19) pandemic.

“Pre-Covid-19 real GDP forecast was estimated by the Ministry of Finance and Economic Planning at 5.5%. However, the country appears to be experiencing a lag in terms of Covid-19 incidents. While exponential growth in new cases globally occurred in March-April 2020, Malawi appears to be experiencing exponential growth in cases now when most counties in the region appear to have flattened the curve,” reads the statement.

However, the statement indicates that the economy is expected to rebound in 2021 growing by an estimated 4.5%.

 “Driving this growth will be Agriculture; Wholesale and Retail trade; Mining and Quarrying; Electricity, Gas and Water; Information and Communication; and Financial and Insurance Services,” it says.

The Ministry forecasts a fiscal deficit of 9% of GDP in 2020/21 due to continued tax revenue shortfalls combined with the need for increased government spending to counter the effects of the pandemic. This deficit is higher than the projected pre-pandemic fiscal gap of 3% of GDP.

Nonetheless, the statistics from the Ministry shows that inflation rate has reduced from 11.1% recorded in January 2020 to 8.7% in the month of May 2020 representing a decline of 2.4% in the five months.

“Headline inflation is expected to average 10.7% in 2020 slightly up from an average 9.2% and 9.4% recorded in 2018 and 2019, respectively. Uncertainty associated with the Covid-19 pandemic remains the key upward risk to inflation.”

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