World Bank forecasts gloomy outlook for Malawi economy

By Chrissy Fereciah Nkumba

The World Bank has painted a gloomy outlook for the Malawi economy in the medium-term.

The Bank says persistent foreign exchange unavailability, a wave of corporate bankruptcies, financial stress, delays in the implementation of Affordable Input Programme (AIP) and reform process, rising poverty and food insecurity, and a worsening of the current cholera outbreak could derail Malawi’s economic recovery.

The Bretton wood institution in its latest Malawi Economic Monitor (MEM) says Malawi’s economy is projected to post subdued growth over the year, with per capita income stagnating.

“The industry and services sectors continue to be impacted by erratic electricity supply. Recovery from the COVID-19 pandemic continues to be hampered by the sustained impacts of cyclones in early 2022, as well as persistent economic imbalances,” reads the report:

The Bank, however, says economic growth is projected to pick up to 2.2 percent in 2023, driven in particular by a recovery of the agricultural sector but warned that full recovery of the economy to a pre-COVID-19 growth path is not expected in the near term.

The report also points out that prolonged foreign exchange shortages can have severe and long-lasting effects on the real economy.

“Businesses have to forego potentially profitable investment opportunities because imported investment items are unavailable limiting economic growth in the medium term. When a market price is replaced by government interventions, it is often done on a per-good- or per-business-basis. This may deepen the crisis by limiting the capacity of businesses to generate foreign exchange,” states the Bank.

It explains that the poor performance of exports, amid elevated global prices for most key commodities, will result in a further weakened external sector and a high current account deficit.

Reads the report: “While a more flexible exchange rate regime has some negative consequences in the short term, such as an increase in the cost of imports, it should gradually help increase export competitiveness and improve the trade balance in the medium term.”

“However, limited diversification and declining global demand for tobacco will contribute to sustained difficulties in reducing the current account deficit. As such, increasing exports in identifying new potential export sectors, most notably in agribusiness and mining, will be essential.

The Bank also says that inflation is expected to remain high citing that Malawian businesses and consumers will likely have to expect higher Malawi kwacha prices for imported products, especially fuel, fertilizer and cooking oil.

“In addition to rising inflation, there is a possibility of energy prices rising, which will increase electricity prices and further strain the costs of production.”

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